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					KnowledgeWorks
Foundation
Consolidated Financial Statements and
Supplemental Schedules as of and for the
Years Ended June 30, 2011 and 2010, and
Independent Auditors’ Report
KNOWLEDGEWORKS FOUNDATION

TABLE OF CONTENTS


                                                              Page

INDEPENDENT AUDITORS’ REPORT                                   1

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
 YEARS ENDED JUNE 30, 2011 AND 2010:

 Statements of Financial Position                              2

 Statements of Activities                                      3

 Statements of Functional Expenses                            4–5

 Statements of Cash Flows                                      6

 Notes to Consolidated Financial Statements                   7–23

SUPPLEMENTAL SCHEDULES AS OF AND FOR THE
 YEARS ENDED JUNE 30, 2011 AND 2010:                           24

 Consolidating Statements of Financial Position Information   25–26

 Consolidating Statements of Activities Information           27–28
INDEPENDENT AUDITORS’ REPORT


To the Board of Directors of
KnowledgeWorks Foundation:

We have audited the accompanying consolidated statements of financial position of KnowledgeWorks
Foundation and subsidiaries (the Foundation) as of June 30, 2011 and 2010, and the related consolidated
statements of activities, functional expenses, and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Foundation’s management. Our responsibility is to
express an opinion on these consolidated 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 of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Foundation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of the Foundation as of June 30, 2011 and 2010, and the changes in their net assets and their cash
flows for the years then ended in conformity with accounting principles generally accepted in the United
States of America.

Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The consolidating schedules on pages 25–28 are presented for the purpose of
additional analysis of the basic consolidated financial statements rather than to present the financial
position and changes in net assets of the individual entities, and are not a required part of the basic
consolidated financial statements. These schedules are the responsibility of the Foundation’s
management. Such schedules have been subjected to the auditing procedures applied in our audits of the
basic consolidated financial statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic consolidated financial statements taken as a whole.




October 28, 2011
KNOWLEDGEWORKS FOUNDATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF JUNE 30, 2011 AND 2010


                                                                      2011            2010
ASSETS

CASH AND CASH EQUIVALENTS                                      $ 17,388,532      $ 11,644,795
ACCOUNTS RECEIVABLE — Net                                            2,439,548      2,076,773
INTEREST RECEIVABLE:
 Investments                                                            12,858         24,393
 Student loans                                                       7,385,912      7,154,915
GRANTS RECEIVABLE                                                    1,194,989      1,006,850
INVESTMENTS — At fair value                                        118,506,587    105,533,748
RESTRICTED CASH AND CASH EQUIVALENTS                                27,758,433     42,614,245
STUDENT LOANS HELD FOR SALE                                                        36,290,409
STUDENT LOANS RECEIVABLE — Net of allowance of approximately
 $1.3 million in 2011 and $1.1 million in 2010                     467,091,227    433,217,292
DEFERRED FINANCING COSTS — Net                                       2,718,765      2,279,610
OTHER                                                                 303,102         456,024
PROPERTY AND EQUIPMENT — Net                                         1,149,645      1,588,673

TOTAL                                                          $ 645,949,598     $ 643,887,727


LIABILITIES AND NET ASSETS

ACCOUNTS PAYABLE AND ACCRUED EXPENSES                          $     9,127,925   $ 10,219,054
INTEREST PAYABLE                                                      385,814         394,236
INTEREST RATE SWAP AGREEMENT                                         1,771,384      2,589,274
BORROWINGS UNDER LINE OF CREDIT                                                     1,211,400
BORROWINGS UNDER FEDERAL PARTICIPATION PROGRAM                                     35,775,144
DEFERRED REVENUE                                                     3,270,750      1,058,000
ARBITRAGE REBATE LIABILITY                                            424,075       2,354,561
BONDS AND NOTES PAYABLE                                            496,764,491    475,600,000
COMMITMENTS AND CONTINGENCIES (Note 11)

       Total liabilities                                           511,744,439    529,201,669

UNRESTRICTED NET ASSETS                                            130,015,770    111,056,919
TEMPORARILY RESTRICTED NET ASSETS                                    4,189,389      3,629,139

       Total net assets                                            134,205,159    114,686,058

TOTAL                                                          $ 645,949,598     $ 643,887,727


See notes to consolidated financial statements.



                                                   -2-
KNOWLEDGEWORKS FOUNDATION

CONSOLIDATED STATEMENTS OF ACTIVITIES
FOR THE YEARS ENDED JUNE 30, 2011 AND 2010


                                                          2011                                                     2010
                                                       Temporarily                                              Temporarily
                                        Unrestricted    Restricted              Total           Unrestricted     Restricted             Total
REVENUES:
 Income from investments — net      $     1,147,131    $                 $     1,147,131    $     1,043,282    $       2,112     $     1,045,394
 Interest and fees on student
  loans receivable — net                 12,234,602                           12,234,602         10,507,113                           10,507,113
 Gain on sale of student loans              549,917                              549,917            285,616                              285,616
 Grant revenue                              219,056        4,651,498           4,870,554            513,014        3,813,652           4,326,666
 Contract service revenue                 9,719,285                            9,719,285          5,578,399                            5,578,399
 Unrealized and realized gains
  on investment securities — net         24,307,333                           24,307,333         13,055,859                           13,055,859
 Net assets released from
  restriction                             4,091,248        (4,091,248)                            7,619,252        (7,619,252)

       Total revenues                    52,268,572          560,250          52,828,822         38,602,535        (3,803,488)        34,799,047

COST OF DEBT:
 Interest expense                         5,635,071                            5,635,071          5,796,731                            5,796,731
 Amortization of deferred costs             429,732                              429,732            336,786                              336,786
 Other debt related costs                                                                            22,889                               22,889
 Remarketing expenses                       322,168                             322,168             231,232                              231,232

       Total cost of debt                 6,386,971                            6,386,971          6,387,638                            6,387,638

       Net revenue (expense)
        after cost of debt               45,881,601          560,250          46,441,851         32,214,897        (3,803,488)        28,411,409

PROVISION FOR STUDENT
 LOAN LOSS                                 (556,495)                            (556,495)          (822,544)                            (822,544)
UNREALIZED GAIN ON
 INTEREST RATE SWAP                         817,890                             817,890             442,539                             442,539
PROGRAM AND SUPPORTING
 EXPENSES:
 High school redesign                     3,536,363                            3,536,363          6,151,800                            6,151,800
 New technology network                   8,021,862                            8,021,862          7,593,680                            7,593,680
 Strive                                   3,255,439                            3,255,439          2,257,341                            2,257,341
 Grantmaking                                434,689                              434,689            608,177                              608,177
 Organizational learning and
  innovation                              1,081,850                            1,081,850          1,096,053                            1,096,053
 Strategic advancement                      776,945                              776,945            589,102                              589,102
 Education policy institute               1,803,343                            1,803,343            750,168                              750,168
 Student loan programs                    3,184,059                            3,184,059          4,890,044                            4,890,044
 General and administrative               5,089,595                            5,089,595          5,213,687                            5,213,687

       Total program and
        supporting expenses              27,184,145                           27,184,145         29,150,052                           29,150,052

INCREASE (DECREASE) IN
 NET ASSETS                              18,958,851          560,250          19,519,101          2,684,840        (3,803,488)        (1,118,648)

NET ASSETS — From business
 combination                                                                                     (1,367,249)         241,861          (1,125,388)
NET ASSETS — Beginning
 of year                                111,056,919        3,629,139         114,686,058        109,739,328        7,190,766         116,930,094

NET ASSETS — End of year            $ 130,015,770      $ 4,189,389       $ 134,205,159      $ 111,056,919      $ 3,629,139       $ 114,686,058


See notes to consolidated financial statements.




                                                                         -3-
KNOWLEDGEWORKS FOUNDATION

CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES
FOR THE YEAR ENDED JUNE 30, 2011


                                                                                                                                                                                       Total
                                 High            New                                  Organizational                   Education         Student        Total        General        Program and
                                School        Technology                              Learning and     Strategic         Policy           Loan        Program          and           Supporting
                               Redesign        Network         Strive     Grantmaking  Innovation    Advancement        Institute       Programs      Expenses     Administrative    Expenses

Salaries and benefits        $ 1,329,825      $ 3,752,490   $ 924,444     $ 36,048     $ 577,610     $ 502,380     $     665,796    $     53,286    $ 7,841,879    $ 2,641,868      $ 10,483,747
Grants made to other
 entities                                           1,000    1,144,004     382,617                     30,471            110,000                      1,668,092                       1,668,092
Professional fees             1,224,459           922,432      832,211       1,000        207,733     121,504            726,963        1,337,463     5,373,765       633,787         6,007,552
Legal expense                     5,828           115,999        1,909                      2,153                          6,469          114,570       246,928       159,858           406,786
Communications                    1,004            80,336       28,500                     83,878      17,299              4,957                        215,974        32,218           248,192
Accounting/auditing fees         10,102            21,898       10,000                                                                    55,700         97,700       152,255           249,955
Travel                          635,928           853,081      105,333          597        77,983      66,388            134,232           3,162      1,876,704       110,217         1,986,921
Industry conferences              2,707             8,658        3,555        5,075         3,291         364             30,619                         54,269         9,970            64,239
Business meetings               121,779           471,053       68,439          275        34,505      19,437             43,412             585        759,485        22,134           781,619
School site expenses                                            43,072                                                                                   43,072                          43,072
Office administration            69,304           145,660       47,952                     29,964                                                       292,880       387,776           680,656
Telephone                        18,085            65,327        9,651                      6,090         204              2,002                        101,359        37,381           138,740
Insurance                                             150                                                                                                   150        98,774            98,924
Technology support                  261           727,080                                                                                               727,341       163,357           890,698
Internet and network             17,765           419,248        1,309                      1,057         158                541                        440,078        78,954           519,032
Equipment leasing                25,899            14,201        8,928                      5,580                                         10,249         64,857        47,490           112,347
Office supplies                  21,342            58,652        7,726         261          5,593         894              1,209                         95,677        72,415           168,092
Postage and delivery              2,245            13,265        3,460                     15,166         646                584             342         35,708        12,420            48,128
Printing and copying              5,345            12,674          885                      6,802       1,326              1,240           2,438         30,710        23,422            54,132
Depreciation                     33,037           276,570          443                                                                    15,605        325,655       341,320           666,975
Training and development
 materials                         8,898           16,186        4,723                      1,406                                                        31,213        16,093            47,306
Recruiting                            35           27,834          833                                                                                   28,702         1,503            30,205
Temporary help                                      1,952                                     318                                                         2,270        22,862            25,132
Subscriptions                      1,022            1,526        3,220        5,581         2,336       1,410              2,904                         17,999         2,344            20,343
Dues and memberships                 743           13,398        3,581          167        20,075      14,464             70,415                        122,843        12,003           134,846
Other                                750            1,192        1,261        3,068           310                          2,000                          8,581         9,174            17,755
Loan servicing fees                                                                                                                     1,145,926     1,145,926                       1,145,926
Trustee and admin fees                                                                                                                     31,010        31,010                          31,010
Marketing, business
 development, and other                                                                                                                  413,723        413,723                         413,723

Total program and
 supporting expenses         $ 3,536,363      $ 8,021,862   $ 3,255,439   $ 434,689    $ 1,081,850   $ 776,945     $ 1,803,343      $ 3,184,059     $ 22,094,550   $ 5,089,595      $ 27,184,145

See notes to consolidated financial statements.



                                                                                               -4-
KNOWLEDGEWORKS FOUNDATION

CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES
FOR THE YEAR ENDED JUNE 30, 2010


                                                                                                                                                                                     Total
                                 High            New                                    Organizational               Education         Student        Total        General        Program and
                                School        Technology                                Learning and     Strategic     Policy           Loan        Program          and           Supporting
                               Redesign        Network           Strive     Grantmaking  Innovation    Advancement    Institute       Programs      Expenses     Administrative    Expenses

Salaries and benefits        $ 1,340,202      $ 3,115,190     $ 739,455     $ 41,162     $ 465,281     $ 204,488     $ 289,536    $     53,486    $ 6,248,800    $ 2,420,654      $ 8,669,454
Grants made to other
 entities                       283,500              25,000      779,617     559,342         70,000                     6,000                       1,723,459                       1,723,459
Professional fees             2,623,040           1,178,235      330,778       1,569        233,370     243,306       368,573         3,060,449     8,039,320       503,072         8,542,392
Legal expense                    25,827             198,815        4,125                      2,429                     1,240             9,666       242,102       195,430           437,532
Evaluation                       17,891                                                                                                                17,891                          17,891
Communications                   23,892            106,665        21,140         753         10,024           9         1,934                         164,417       199,559           363,976
Accounting/auditing fees                            55,700                                                                              47,259        102,959       157,411           260,370
Travel                          703,762            584,527        70,499        1,989       116,050      59,680        40,744            1,627      1,578,878        86,106         1,664,984
Industry conferences             55,217            157,485         5,595                      8,661                        95                         227,053        15,279           242,332
Business meetings               771,581            244,024        51,898         997         82,109      29,720        28,611              711      1,209,651        24,348         1,233,999
School site expenses                               595,328       174,758                                                                              770,086                         770,086
Office administration           111,737            143,533        42,324                     36,276                                                   333,870       573,185           907,055
Telephone                        16,575             47,311         5,367                      1,087         121           635                          71,096        54,730           125,826
Insurance                                              914                                                                                                914        82,171            83,085
Technology support                                 645,668                                                                119              117        645,904       132,570           778,474
Internet and network             23,567            151,314         2,434                      2,472                       965                         180,752        67,179           247,931
Equipment leasing                25,849             19,325         6,996                      6,000                       317           12,431         70,918        47,188           118,106
Office supplies                  30,272             71,431         7,914                      3,119                       375            1,479        114,590        73,388           187,978
Postage and delivery              3,923             16,830         1,396          21         13,289         704            65              508         36,736         9,763            46,499
Printing and copying             15,608              2,972         9,223         299         19,242         298           203            3,678         51,523        17,678            69,201
Depreciation                     34,582            213,633                                                                              21,939        270,154       418,034           688,188
Training and development
 materials                       41,985             12,064                                    1,639                                                    55,688        17,831            73,519
Recruiting                          195              2,489                                                                                              2,684        86,193            88,877
Temporary help                                         330                                      351                                                       681         8,634             9,315
Art program
Subscriptions                      1,093             1,657         3,013                      2,109       1,298        10,443                          19,613          7,503           27,116
Dues and memberships               1,132             2,000           310           45        22,332      49,455            15                          75,289          9,659           84,948
Other                                370             1,240           499        2,000           213          23           298                           4,643          6,122           10,765
Loan servicing fees                                                                                                                    873,122        873,122                         873,122
Trustee and admin fees                                                                                                                  46,098         46,098                          46,098
Marketing, business
 development, and other                                                                                                                757,474        757,474                         757,474

Total program and
 supporting expenses         $ 6,151,800      $ 7,593,680     $ 2,257,341   $ 608,177    $ 1,096,053   $ 589,102     $ 750,168    $ 4,890,044     $ 23,936,365   $ 5,213,687      $ 29,150,052

See notes to consolidated financial statements.

                                                                                                 -5-
KNOWLEDGEWORKS FOUNDATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

                                                                                      2011            2010

CASH FLOWS FROM OPERATING ACTIVITIES:
 Change in net assets                                                          $ 19,519,101       $ (1,118,648)
 Adjustments to reconcile change in net assets to net cash flows provided by
  (used in) operating activities:
  Depreciation and amortization                                                      1,322,409       3,020,756
  Unrealized and realized gains on investment securities — net                     (24,307,333)    (13,055,859)
  Provision for student loan loss                                                      556,495         822,544
  Unrealized gain on interest rate swap                                               (817,890)       (442,539)
  Payment of arbitrage liability                                                    (1,540,705)
  Change in arbitrage liability                                                       (389,781)       (203,676)
  Student loans originated for sale — net of repayments                                (87,475)    (37,187,617)
  Proceeds from sale of student loans originated for sale                           35,917,391      25,186,103
  Change in operating assets and liabilities:
   Accounts receivable                                                                (362,775)     (1,770,185)
   Grants receivable                                                                  (188,139)      1,519,794
   Interest receivable                                                                (219,462)        610,116
   Other assets                                                                        152,922        (238,620)
   Interest payable                                                                     (8,422)       (140,565)
   Deferred revenue                                                                  2,212,750        (148,143)
   Accounts payable and accrued expenses                                            (1,091,129)        745,522

       Net cash flows provided by (used in) operating activities                   30,667,957      (22,401,017)

CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisition of student loans                                                      (79,780,998)       (671,048)
 Principal repayments on student loans                                              45,585,359      35,716,477
 Purchases of fixed assets                                                            (227,947)       (676,756)
 Purchase of investments                                                           (42,061,618)     (5,368,949)
 Proceeds from maturities and sales of investments                                  53,396,112      12,262,438
 Investments in restricted cash and cash equivalents                               (70,444,667)     (4,981,026)
 Withdrawals of restricted cash and cash equivalents                                85,300,479      13,548,407

       Net cash flows (used in) provided by investing activities                    (8,233,280)     49,829,543

CASH FLOWS FROM FINANCING ACTIVITIES:
 Issuance of bonds and notes payable                                                82,465,458
 Principal repayments on bonds and notes payable                                   (61,368,298)    (44,800,000)
 Borrowings under federal participation program                                         87,475      35,857,414
 Principal repayments on federal participation program                             (35,862,620)    (25,391,948)
 Borrowings on line of credit                                                          400,000      38,531,328
 Principal repayments on line of credit                                             (1,611,400)    (38,968,640)
 Payment of debt issuance costs                                                       (801,555)

       Net cash flows used in financing activities                                 (16,690,940)    (34,771,846)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                5,743,737       (7,343,320)
CASH AND CASH EQUIVALENTS — From business combination                                                1,124,563
CASH AND CASH EQUIVALENTS — Beginning of year                                      11,644,795       17,863,552

CASH AND CASH EQUIVALENTS — End of year                                        $ 17,388,532       $ 11,644,795

SUPPLEMENTAL DISCLOSURE — Interest paid                                        $    5,643,493     $ 5,937,296

See notes to consolidated financial statements.



                                                                   -6-
KNOWLEDGEWORKS FOUNDATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2011 AND 2010


1.   NATURE OF OPERATIONS AND BASIS OF PRESENTATION

     Nature of Operations — KnowledgeWorks Foundation (the Foundation) engages in two primary lines
     of business, including the development and implementation of innovative and effective approaches to
     high school education in the United States (Program Operations), and student loan activities, which
     seeks to provide students and families with low-cost student loans and financial outreach.

     Basis of Presentation — The consolidated financial statements include the accounts of the Foundation
     and all entities that are controlled by the Foundation and in which the Foundation has an economic
     interest. These entities include (1) the Foundation, KnowledgeWorks Intermediary, LLC;
     EdWorks, LLC; Strive, LLC; as of July 1, 2009, New Technology Foundation, New Technology Fund;
     and, as of July 14, 2009, New Technology Network, LLC, which conduct the Foundation’s Program
     Operation activities; (2) KWI, which manages the Foundation’s investment portfolio; and
     (3) KWSL, LLC; Student LendingWorks, Inc.; and KnowledgeFunding Ohio, Inc. (KFO), which
     conduct the Foundation’s student loan activities. KWSL, LLC is an Ohio limited liability company
     created to manage the Foundation’s student loan activities (including a portfolio of student loans
     originated under the Federal Family Education Loan Program (FFELP) and a private education loan
     program (“National Program”)); Student LendingWorks, Inc. is an Ohio nonprofit organization that
     originated federally guaranteed student loans; and KFO is an Ohio nonprofit organization designated as
     the state of Ohio’s sole issuer of qualified scholarship bonds. All intercompany transactions and
     balances have been eliminated.

2.   SUMMARY OF ACCOUNTING POLICIES

     Cash and Cash Equivalents — Cash and cash equivalents consist of cash in checking and money
     market accounts. The Foundation maintains cash balances at financial institutions with strong credit
     ratings. At times, cash and money market balances may be in excess of the insurance coverage provided
     by the Federal Deposit Insurance Corporation. The Foundation has not experienced any losses in such
     accounts.

     Investments — Investments primarily consisting of equity securities and mutual funds are carried at
     current fair values based upon quoted market prices. Investments also include certain nonregistered
     funds which are carried at current fair value based on information provided by the fund managers.
     Unrealized gains and losses resulting from changes in fair values are recognized in the consolidated
     statements of activities. Investment securities, in general, are exposed to various risks, such as interest
     rate risk, credit risk, and overall market volatility. Due to the level of risk associated with certain
     investment securities, it is reasonably possible that changes in the values of investment securities could
     occur in the near term and those such changes could materially affect the amounts reported in the
     consolidated financial statements. Income from investments is reported net of related expenses of $1.4
     million and $1 million for the years ended June 30, 2011 and 2010, respectively.

     Restricted Cash and Cash Equivalents — Restricted cash and cash equivalents represent demand
     deposits and money market funds bearing interest at a variable rate. Such amounts are primarily
     restricted to paying debt obligations and program expenses or funding the acquisition of student loans.



                                                      -7-
Also included in restricted cash and cash equivalents is the escrow fund established to provide further
security for the payment of principal and interest on the tax-exempt bonds issued by KFO (see Note 6
for discussion of the escrow account).

Deposit and Investment Policies — KFO is restricted to investing its excess cash in eligible
investments, as defined in the bond indentures (see Note 6) and approved by the rating agencies.

Accounts Receivable — Accounts receivable consist of fee for contract service revenues receivable.
Management believes all receivables are current and collectible, except for $72,000 which has been
recorded as an allowance for uncollectible accounts against accounts receivable in the accompanying
consolidated statements of financial position as of June 30, 2011. No allowance was recorded as of June
30, 2010. Management bases this assessment on specific analysis of outstanding balances at year-end.

Student Loans Receivable — Student loans are reported in the consolidated statements of financial
position at their unpaid principal balances plus unamortized loan origination costs and loan acquisition
premiums and discounts. Costs related to loan originations and premiums and discounts related to loan
purchases are deferred and recognized over the life of the loan as an adjustment to yield using the
effective yield method. The reported value of student loans is also decreased by an allowance for loan
losses to reflect probable loan losses.

Student loan income is recognized on the accrual basis, including adjustments for the amortization of
costs of loan origination and purchases.

Probable losses on student loan receivables can result from deficient servicing, risk sharing on defaults,
and on uninsured loans. The allowance for loan losses is based upon the Foundation’s ongoing
evaluation of the loan portfolios, past and anticipated loss experience, and the amount and quality of the
loans. The allowance is maintained at a level that the Foundation believes is adequate to absorb probable
losses, but the evaluation is inherently subjective and the required allowance may significantly change in
the future.

Student Loans Held for Sale — Student loans held for sale are reported in the consolidated statements
of financial position at the lower of unpaid principal balances or fair value. These loans were sold to the
U.S. Department of Education on September 23, 2010 at a statutory purchase price that exceeded their
carrying value.

Deferred Financing Costs — Financing costs, comprised of underwriting fees, legal expenses, and
other costs related to debt financings, have been deferred and are being amortized over the life of the
related debt using a method which approximates the level-yield method.

Deferred Revenue — Deferred revenue consists of amounts collected on fee for contract services that
have not yet been earned. The majority of contracts are for three to four years plus the planning and
start-up period and revenue is recognized as services are performed.

Arbitrage Rebate Liability — In accordance with provisions of the Internal Revenue Code (IRC) and
related regulations, retainable interest income from investments related to proceeds from tax-exempt
bonds is limited to the bond yield of the related bond issue. Similarly, student loan income on all tax-
exempt bond issues, which may be retained by KFO, is limited to the bond yield plus debt issue costs,
loan acquisition costs, certain administrative expenses, and an allowable spread. Reserves are
maintained for estimated liabilities with respect to future payments of excess student loan and
investment income above the retainable amount. Payments of the non-retainable (“excess interest”)




                                                 -8-
investment or student loan income are required to be made to the federal government on a periodic basis
generally every five years and at final maturity of the related bond issue (see Note 7 for discussion of
payments of and changes in the arbitrage liability).

Unrestricted Net Assets — Unrestricted net assets are free from donor imposed restrictions. These
funds are maintained and distributed at the discretion of the Board of Directors of the Foundation.

Temporarily Restricted Net Assets — Temporarily restricted net assets are those whose use by the
Foundation has been limited by donors to a specific time period or purpose. These funds include
amounts temporarily restricted by donors for certain operating purposes.

Interest Rate Swap Agreement — The interest rate swap agreement is a complex financial instrument
consisting of both an interest rate swap and an option contract and, as such, is recorded at fair value in
the accompanying consolidated statements of financial position. Unrealized changes in the fair value of
the interest rate swap agreement are recorded as unrealized gains and losses in the accompanying
consolidated statements of activities. Net payments or receipts under the interest rate swap agreement
are recorded as adjustments to interest expense (see Note 8 for discussion of interest rate swap
agreement).

Depreciation and Amortization — Depreciation of property and equipment is provided over the
estimated useful lives of the respective assets, which range from three to seven years, on a straight-line
basis. Capital leased equipment is amortized over its estimated useful life.

Use of Estimates in Financial Statements — The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.

Revenue Recognition — The Foundation recognizes revenue in the form of grants when such grants are
awarded by the donor. The Foundation receives fees for service provided to high schools, school
districts and communities by providing technical assistance needed to implement new instructional
approaches to learning and improve student achievement and opportunity. Fee for contract service
revenues are recognized as services are performed.

Grant-Making Activities — Conditional promises to give are recorded as contributions made in the
period that they become unconditional. As of June 30, 2011, the Foundation had made future conditional
promises to give $489,500 to thirteen charitable organizations through fiscal year 2013.

Functional Expenses — Costs of providing various programs and other activities have been
summarized on a functional basis in the consolidated statements of functional expenses; accordingly,
certain costs have been allocated among benefited programs and supporting services.

Tax Status — The Foundation and subsidiaries have been recognized as exempt from federal income
tax under Section 501(c)(3) of the IRC by the Internal Revenue Service (IRS) and favorable
determination letters have been obtained. The Foundation has also been recognized as public charity as
defined in Section 509(a) of the IRC by the IRS. Any income not substantially related to the
Foundation’s exempt purpose may be considered unrelated business taxable income under Section 511
of the IRC and, as such, subject to tax at normal corporate rates. Management believes that the
Foundation has been operated consistent with the requirement to retain its tax-exempt status. No



                                                 -9-
     provision for income taxes is reflected in the consolidated financial statements. The Foundation believes
     it is no longer subject to examination by Federal and State taxing authorities for years prior to June 30,
     2008.

     On July 1, 2009, the Foundation adopted Financial Accounting Standards Board (FASB) Accounting
     Standards Codification (ASC) 740, Income Taxes, which prescribed a comprehensive model for how an
     organization should measure, recognize, present, and disclose in its financial statements uncertain tax
     positions that an organization has taken or expects to take on a tax return. The Foundation has analyzed
     tax positions taken for filing with the IRS and all state jurisdictions where it operates. The Foundation
     believes that income tax filing positions will be sustained upon examination and does not anticipate any
     adjustments that would result in a material adverse affect on the Foundation’s financial position,
     statement of activities, or cash flows. Accordingly, the Foundation has not recorded any reserves or
     related accruals for interest and penalties for uncertain income tax positions at June 30, 2011 and 2010.
     In the event interest and penalties accrued on unrecognized tax benefits, the Foundation would recognize
     such amounts as a component of income tax expense.

     Reclassifications — Certain reclassifications have been made to the fiscal year 2010 consolidated
     financial statements to conform to the fiscal year 2011 presentation.

3.   BUSINESS COMBINATION

     On August 28, 2009, New Technology Foundation and New Technology Fund (collectively New Tech),
     California nonprofit public benefit corporations, became wholly owned subsidiaries of the Foundation.
     The Foundation is the sole member of each organization. There was no consideration exchanged among
     the parties and, accordingly, the business combination was accounted for as a pooling-of-interests. The
     accompanying consolidated financial statements have been prepared as if the merger occurred on July 1,
     2009.

4.   STUDENT LOANS RECEIVABLE

     Student loans receivable consist primarily of loans made under the FFELP of the Higher Education Act
     and are carried at their unpaid principal balance, net of an allowance for loan losses, plus unamortized
     purchase premiums, discounts, origination fees, and transfer fees. The Foundation owns, holds, and
     administers subsidized Federal Stafford loans, unsubsidized Federal Stafford loans, Federal PLUS loans,
     Federal Supplemental Loans to Students (SLS), and Federal Consolidation Loans.

     Whenever the statutory interest rates paid by borrowers on FFELP loans provide less than the prescribed
     rates of return, as defined by the Higher Education Act, the U.S. Department of Education pays a special
     allowance payment (SAP), which increases the lender’s loan yield by mark-ups ranging from 1.74% to
     3.50% per annum on loans first disbursed prior to October 1, 2008 and 1.19% to 2.24% on loans
     disbursed on or after October 1, 2008, over a base rate tied to either the 91-day Treasury Bill auction
     yield or the bond equivalent rates of the average three-month Financial Commercial Paper rates (“FCP
     rate”) in effect for each of the days in a quarter. For the quarter ended June 30, 2011, the average FCP
     rate in effect was 0.19%. In addition, the U.S. Department of Education generally pays the stated interest
     rate on subsidized Federal Stafford Loans while the borrower is in school, grace, or deferment. For loans
     first disbursed on or after April 1, 2006, whenever the statutory rate paid by borrowers on FFELP loans
     provide more than the prescribed rate of return, as defined by the Higher Education Act, the lender must
     repay to the U.S. Department of Education an amount sufficient to reduce the lender’s yield to the
     prescribed rate of return (“negative SAP”). Net SAP expense was approximately $8,814,000 and
     $10,589,000 during 2011 and 2010, respectively, and is included in the consolidated statements of
     activities as a component of interest and fees on student loans receivable. Accrued SAP was


                                                    - 10 -
approximately $2.3 million and $2.1 million as of June 30, 2011 and 2010, respectively, and is included
in the consolidated statements of financial position as a component of accounts payable and accrued
expenses.

Under the Federal Consolidation Loan Program, eligible borrowers are permitted to consolidate many
types of eligible federally guaranteed student loans into a single loan that is federally insured. The lender
of Federal Consolidation Loans is required to pay the U.S. Department of Education a monthly fee
generally equal to 0.0875% (1.05% per annum) of the monthly ending balance of the sum of the
principal and accrued interest of Federal Consolidation Loans held. This fee was approximately
$3,875,000 and $4,282,000 during 2011 and 2010, respectively, and is included in the consolidated
statements of activities as a component of interest and fees on student loans receivable.

Student loan receivables of the Foundation also include certain private education loans that were
originated under the Access Loan Program and include Law Access loans, Bar Examination loans, and
Private Consolidation loans (collectively the "Private loans"). Interest rates paid by borrowers of private
education loans are based on the 91-day Treasury bill, adjusted quarterly, plus a spread ranging from
3.25% to 3.40%.

A summary of the loan portfolio as of June 30 is as follows (amounts in thousands):

                                                                                  2011             2010

  Stafford                                                                     $ 76,596       $     8,942
  SLS                                                                                56                36
  PLUS                                                                            8,033             4,797
  Consolidation                                                                 375,482           403,360
  Private loans                                                                   2,986             3,319
  Net unamortized loan premium and acquisition costs                             11,819            13,833
  Net unamortized loan discounts                                                 (6,581)

         Total student loans receivable                                          468,391          434,287
  Less allowance for loan losses                                                  (1,300)          (1,070)

  Student loans receivable — net                                               $ 467,091      $ 433,217

Under FFELP, the principal and accrued interest on student loans are guaranteed against default by the
borrower. Loans originated prior to October 1, 1993, are 100% guaranteed. Loans originated between
October 1, 1993 and June 30, 2006, are 98% guaranteed. Loans made subsequent to June 30, 2006, are
97% guaranteed. As of June 30, 2011, 54% of the FFELP loans were 97% guaranteed, 44% were 98%
guaranteed, and 2% were 100% guaranteed. FFELP loans are 100% guaranteed against the death,
disability, or bankruptcy of the borrower regardless of the date of origination of the loan, provided that
the Foundation has not already started the claims process in which case the guarantee rates revert to
those described above. The loans are guaranteed by certain guarantee agencies, which have reinsurance
contracts with the U.S. Department of Education. At June 30, 2011, the majority of FFELP student loans
are guaranteed by United Student Aid Funds, Inc., the Pennsylvania Higher Education Assistance
Authority, Great Lakes Higher Education Guaranty Corporation, American Student Assistance, and
EdFund (California). The Private loans are not guaranteed by any party. Management has arranged for
collection on defaulted Private loans through a third party collection agent. The extent of future
recoveries on Private loans is not known.




                                                - 11 -
     Management believes its probable losses with respect to these guaranteed loans will not be material to
     the consolidated financial statements, and that allowances are adequate, but not excessive, to absorb
     estimated credit losses associated with the loan portfolio at June 30, 2011 and 2010, respectively.

     The Foundation has entered into direct servicing agreements with five loan servicing agents, including
     American Education Services, Student Assistance Foundation of Montana (SAF), Great Lakes
     Educational Loan Services, Sallie Mae Servicing, and ACS, Inc. SAF services approximately 40% of the
     Foundation’s loan portfolio as of June 30, 2011, while the percent serviced by the remaining agents
     ranges from 5% to 27% of the portfolio. The Foundation and its servicers must comply with certain
     provisions of the Higher Education Act of 1965 and its regulations and the various guarantee agency
     regulations to ensure that the guarantees on the student loans remain in effect. Management believes that
     the Foundation and its servicers are in compliance with the applicable regulations at June 30, 2011.

     Based upon the performance and aging of the student loan portfolio, the ability of the loan servicing
     agents and guarantee agencies to meet their contractual obligations, the terms of the servicing guarantee,
     and reinsurance agreements of such loans and other pertinent factors, management continually evaluates
     the need for reserves for uncollectible loans and, as adjustments become necessary, they are recorded in
     the periods in which they become known.

     On July 17, 2010 KFO executed on a loan exchange with an unrelated party in which it received
     approximately $86.8 million principal amount of Stafford and PLUS loans in exchange for
     approximately $85.9 million principal amount of Federal Consolidation Loans. The loans acquired in the
     exchange were recorded at their fair value of approximately $80.1 million as of the date of the exchange.
     The resulting discount of $8.4 million is being amortized to interest and fees on student loans receivable
     using the effective interest method. KFO recorded approximately $1.8 million of amortization of the
     discount during the year ended June 30, 2011.

5.   PROPERTY AND EQUIPMENT

     Property and equipment as of June 30 are summarized as follows:

                                                                                   2011            2010

       Furniture and fixtures                                                $     731,954     $ 1,489,002
       Computer hardware and software                                            1,623,824       1,607,123
       Equipment                                                                 1,208,618       1,205,926
       Leased capital equipment                                                                    233,849
       Leased software                                                                             231,884
       Leasehold improvements                                                    1,065,826       1,152,411

              Total property and equipment                                       4,630,222       5,920,195

       Less accumulated depreciation and amortization                            (3,480,577)    (4,331,522)

       Property and equipment — net                                          $ 1,149,645       $ 1,588,673




                                                    - 12 -
6.   BONDS AND NOTES PAYABLE

     Debt obligations as of June 30 are summarized as follows (dollars in thousands):

                                                                                   Interest Rate      Total
       2011                                                                          at June 30    Outstanding

       Variable rate tax-exempt bonds maturing in fiscal year 2042               0.22% – 0.29% $ 138,000
       Variable rate tax-exempt bonds maturing in fiscal year 2041               0.26% – 0.40%   194,600
       Variable rate taxable notes maturing in fiscal year 2047                  1.67% – 2.67%    86,500
       LIBOR floating rate taxable bonds maturing in fiscal year 2042                    0.012%   77,664

       Total bonds and notes payable                                                               $ 496,764

       2010

       Variable rate tax-exempt bonds maturing in fiscal year 2042               0.46% – 0.80%     $ 147,800
       Variable rate tax-exempt bonds maturing in fiscal year 2041               0.51% – 0.69%       224,800
       Variable rate taxable notes maturing in fiscal year 2047                  1.75% – 2.08%       103,000

       Total bonds and notes payable                                                               $ 475,600

     The respective bond indentures establish the following special trust accounts for each bond series, unless
     otherwise indicated:

     Loan Accounts — The loan accounts are used to account for the proceeds of bond issues not required to
     be deposited in the debt service reserve accounts. Generally, amounts in the loan accounts may be
     expended (a) to finance eligible student loans (as defined in the indenture of trust), (b) to pay bond issue
     costs, and (c) to make deposits to the revenue accounts for the purpose of paying principal and/or
     interest on the bonds.

     Revenue Accounts — The revenue accounts are used to account for all revenues received into the
     student loan trust accounts. Generally, amounts in the revenue accounts are used (a) to make principal
     and/or interest payments on the bonds, (b) to fund debt service reserve accounts, (c) to pay estimated
     program expenses to the operating account, and (d) to reimburse the issuers of insurance guaranteeing
     the bonds for amounts borrowed under the terms of the policies. Excess amounts in the revenue account
     may be transferred to the loan accounts or to optional redemption accounts.

     Operating Accounts — Amounts deposited in operating accounts are used to pay reasonable and
     necessary program expenses for the bond issues.

     Rebate Accounts — Amounts deposited in the rebate accounts are used to pay the U.S. Treasury
     amounts required by Section 148 of the IRC (arbitrage rebate liability - see Note 7).

     Debt Service Reserve Accounts — The debt service reserve accounts are used by the trustee to pay
     principal, interest, and any premiums on the bonds when the funds in the loan and/or operating accounts
     are insufficient.

     All bonds summarized in the table above were issued pursuant to master indentures of trust (the
     Indentures). The Indentures require that a trustee holds certain assets in trust for the benefit of the
     bondholders. The assets pledged to the trustee as collateral for the repayment of the bonds consist of
     student loans, including the related interest income, and restricted cash and investments. All of such


                                                       - 13 -
assets are included in the accompanying consolidated financial statements. As outlined in the Indentures,
the bonds are collateralized by such assets, and the bondholders have no recourse to any assets of the
Foundation that are outside of the Indentures, or to KFO, the Foundation’s subsidiary. The variable rate
tax-exempt and taxable bonds are composed of senior bonds and subordinate bonds.

On September 16, 2010 the Foundation issued $83,622,000 of student loan backed bonds maturing
February 25, 2042. These bonds (the LIBOR floating rate taxable bonds) bear interest at a variable rate
equal to the three-month LIBOR plus 0.95% per annum. Interest on the bonds is payable on the 25th of
each February, May, August and November.

Auction agents have been appointed for the variable rate bonds and notes to set rates every 35 days. In
addition, the auction agents are responsible for the resale of certain bonds tendered pursuant to the
bondholder put options. Interest on the variable rate bonds is payable semiannually.

Since February 12, 2008, significant disruptions in the U.S. capital markets have caused the auctions on
the Foundation's and KFO’s outstanding variable rate bonds to fail. A failed auction occurs when there
are insufficient investors to purchase the bonds at auction on a particular day. The Indenture covering
the tax-exempt KFO bonds with final maturities in 2041 and 2042 requires that, when a failed auction
occurs, the interest rate on the bonds resets to the Maximum Auction Rate equal to 265% of the Bond
Market Association Index Rate (BMA) for tax-exempt bonds. The Indenture covering the Foundation's
bonds with maturities in 2047 require that, when a failed auction occurs, the interest rate on the Senior
Bonds and the Subordinate Bonds reset to the Maximum Auction Rate equal to one month LIBOR plus
1.25% and one month LIBOR plus 2.5%, respectively. The failed auctions have generally caused the
interest rates on the Foundation's and KFO’s bonds to increase and to significantly narrow its net interest
margin on student loans.

The assets held in trust are currently insufficient to satisfy the full repayment of the principal amount of
the bonds. Since the collapse of the auction rate securities markets early in 2008, the net cash flows
received on the investments held in trust have been insufficient to pay the costs to administer the student
loan program and to pay interest on the bonds. This situation has led to an ever-widening gap between
the value of the assets held in trust and the principal amount of the related bond obligations. As a result,
there is currently substantial doubt about whether the assets in the trust will ultimately be sufficient to
satisfy the repayment of principal at the contractual maturity dates. In addition, if the costs to service the
interest on the bonds and administer the student loan program continue to exceed the net investment
income received by the trustee for the benefit of the bondholders, the cash reserves may be depleted and
the contractual interest payments due on the bonds will not be satisfied. See Note 13 for discussion of
the downgrade of the KFO Senior and Subordinate Bonds.

Since the collapse of the auction rate securities markets early in 2008, management has been pursuing
opportunities in the capital markets in an attempt to lower the cost of borrowings by refinancing the
outstanding obligations. However, it is currently uncertain whether any viable refinancing alternative
will emerge from these efforts.

To the extent that the principal balance on the student loan portfolio financed by the variable rate notes
is collected at a more rapid rate than debt service requirements, the Foundation must pay down the debt
more rapidly. During fiscal years 2011 and 2010, the Foundation was required to make principal
payments totaling $61.4 million and $44.8 million, respectively.

In order to provide further security for the payment of principal and interest on the tax-exempt bonds
issued by KFO, the Foundation has entered into an Escrow and Pledge Agreement with the bond trustee
and the escrow agent. This agreement established an escrow account, which is in custody of the bond


                                                 - 14 -
trustee, to provide for the payment of debt obligations in the event that funds in tax-exempt bond
financing are not sufficient to cover principal and interest payments on the outstanding debt. On
December 21, 2005, the Foundation funded the escrow account in the amount of $7 million. Interest
earned on the amounts in the escrow fund is payable to the Foundation.

Student LendingWorks, Inc. maintained a bank line of credit, which provides for borrowings up to
$10 million, bearing a variable interest rate based on 30-day LIBOR, plus 1.7% (2.075% at June 30,
2010). The bank line of credit was terminated on October 8, 2010. Borrowings at June 30, 2010 totaled
$1.2 million. The Foundation was the guarantor of the Student LendingWorks, Inc., line of credit.

Borrowings under the federal participation program are secured by the student loans held for sale. The
Foundation pays the U.S. Department of Education a facility fee equal to the three-month financial
commercial paper rate, plus 0.5%. Borrowings under the federal participation program as of June 30,
2010 were repaid on September 23, 2010. Borrowings under the federal participation program that were
outstanding as of June 30, 2010 were repaid during the current fiscal year. The Foundation's activity
relating to the federal participation program concluded in September 2010.

On July 8, 2010, the Foundation entered into a bank line of credit agreement, which provides for
borrowings up to $2 million, bearing a variable interest rate based on 30-day LIBOR plus 1.7%. The
maturity date is July 7, 2011. There were no borrowings on this line of credit as of June 30, 2011 and
2011.

The Foundation is subject to certain restrictive covenants under the indentures of trust and the line of
credit agreements related to the notes and bonds. Among other requirements, the Foundation is required
to do all things necessary to perfect its security interest and rights under the guarantee agreements with
the guarantee agencies with respect to purchased student loans. As of June 30, 2011 and 2010,
management believes the Foundation is in compliance with these requirements. The debt obligations are
collateralized by certain of the Foundation’s assets held by the trustees under the indentures of trust,
primarily comprised at June 30, 2011 and 2010, of student loans receivable of $467.1 million and
$433.2 million and of restricted cash and cash equivalents of approximately $27.8 million and
$42.6 million, respectively.

At June 30, 2011 and 2010, the Foundation was a party to an interest rate swap agreement with a
notional amount of $19.5 million and $27.0 million, respectively. The maturity date of the interest rate
swap agreement is June 15, 2024. The Foundation receives payment based on one-month LIBOR
(0.19% at June 30, 2011 and 3.50% at June 30, 2010), while it pays a fixed rate of 5.64%. The fair value
of the swap agreement as of June 30, 2011 and 2010 is a liability of $1.8 million and $2.6 million,
respectively, and is included in the accompanying consolidated statements of financial position.

The interest rate swap agreement in effect at June 30, 2011 will amortize down over the life of the
agreement to a notional amount of $3.5 million at the maturity date. The objective of the interest rate
swap is to economically manage the interest rate risk associated with certain fixed rate loans that were
funded with variable rate borrowings. The interest rate swap is a complex derivative that contains an
embedded option, which allows the Foundation to further reduce the notional amount of the contract at
set dates during the life of the contract.

The unrealized gains and losses on this interest rate swap agreement have been recorded as unrealized
gains and losses on interest rate swaps in the accompanying consolidated statements of activities.




                                               - 15 -
     Notional amounts do not quantify credit risk or represent assets or liabilities, but are used in the
     calculation of cash settlements under the interest rate swap agreements. The counterparty to this interest
     rate swap agreement is a major financial institution whose creditworthiness is subject to continuing
     review by management.

7.   ARBITRAGE REBATE LIABILITY

     In accordance with Section 148 of the IRC of 1986, as amended, and the regulations promulgated
     thereunder, KFO is required to pay to the United States Treasury certain amounts related to the KFO
     tax-exempt bond issues. The amount required to be paid represents the excess of amounts earned over
     the interest cost of the tax-exempt borrowings as defined in the IRC. Excess interest on investments is
     rebatable every fifth year and when the bonds are retired. Excess interest on student loans is rebatable in
     the tenth year and every fifth year thereafter during the life of each bond issue and when the bonds are
     retired. The rebate calculation utilizes various assumptions and allows for the selection of alternative
     calculation options under the IRC. During fiscal year 2011, KFO made a payment totaling $1.5 million
     relating to excess interest on investments. At June 30, 2011 and 2010, the estimated arbitrage rebate
     liability is approximately $424,000 and $2.4 million, respectively, which has been provided for in the
     consolidated statements of financial position. Included in income from investments on the consolidated
     statements of activities is $390,000 and $204,000 of unrealized income related to the change in the
     estimated arbitrage rebate liability in 2011 and 2010, respectively. Higher debt costs experienced during
     2011 and 2010 resulted in reductions in the arbitrage rebate accrual. The factors used in determining this
     estimate are sensitive to change in the future, and the change in estimate may be material to the
     consolidated financial statements. However, the ultimate amount payable, if any, is dependent on the
     investment yields and bond rates in the future.

8.   FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Foundation follows the provisions of FASB ASC 820, Fair Value Measurements and Disclosures,
     which provides a framework for fair value measurements. Fair values are generally based upon quoted
     market prices, where available. In the event that market prices or quotes are not available, fair value is
     based upon market data and may involve the use of industry experts. Fair value measurements are
     grouped into a three-level valuation hierarchy. The valuation hierarchy is based on the transparency of
     inputs to the valuation of the financial instruments as of the valuation date. The three levels are defined
     as follows:

     Level 1 — Inputs are unadjusted quoted prices for identical assets or liabilities in active markets.

     Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, and inputs that
     are observable for the asset or liability, either directly or indirectly.

     Level 3 — Inputs are unobservable and considered significant to the fair value measurement.

     A financial instrument’s categorization within the hierarchy is based upon the lowest level of input that
     is significant to the fair value measurement. Following is a description of the valuation methodologies
     used, as well as the general classification of such instruments pursuant to the hierarchy.

     Common Stocks and Mutual Funds — The Foundation’s investments in common stocks and mutual
     funds are commonly traded in active markets. The fair values of these investments are based primarily
     on quoted market prices. These investments are classified as Level 1.




                                                     - 16 -
Common Trust Funds — The value of the Foundation’s investments in common trust funds are based
upon the per unit value of the fund as reported to the Foundation by the fund manager. These values are
based on inputs that are observable for the underlying assets of the fund. As of June 30, 2011 and 2010,
these investments are classified as Level 2.

Hedge and Private Equity Funds — Hedge and private equity fund values are based upon the per unit
value of the fund as reported to the Foundation by the fund manager. These values are compared to the
values of similar funds and market indexes. Values are also compared to purchases and sales as reported
by the fund managers. Due to the significant unobservable inputs used in the valuation and the length of
contractual restrictions on redemptions, these investments are classified as Level 3.

Interest Rate Swap Agreement — The fair value of the interest rate swap agreement is estimated by
management based on information obtained from the counterparty of the amount the Foundation would
be required to pay or would receive, as of June 30, 2011 and 2010, in order to terminate the agreement.
Due to the significant unobservable inputs used in the valuation, the interest rate swap agreement is
classified as Level 3.

The following tables set forth by level within the fair value hierarchy a summary of the Foundation’s
investments and interest rate swap agreement measured at fair value at June 30, 2011 and 2010.

                                                                          2011
                                          Quoted Prices          Significant       Significant
                                        in Active Markets           Other         Unobservable
                                       for Identical Assets   Observable Inputs      Inputs
                                             (Level 1)            (Level 2)         (Level 3)          Total
  Investments:
  U.S. equities:
    Large cap growth stocks              $                     $ 13,400,097       $                $ 13,400,097
    Large cap value stocks                                       13,010,882                          13,010,882
    Mid cap core stocks                       6,090,339                                               6,090,339
    Mid cap value stocks                      6,267,998                                               6,267,998
  International equities:
    Developed countries                      12,159,126                                              12,159,126
    Emerging markets                          6,262,917            6,405,184                         12,668,101
  Real assets:
    Commodities and inflation hedges          3,925,150            4,914,132                          8,839,282
  Global asset allocation:
    Opportunistic funds                       1,998,873            5,352,563                          7,351,436
  Emerging markets:
    Emerging market local currencies          6,162,056                                               6,162,056
  Hedge funds and private equtiy:
    Distressed debt hedge funds                                                        6,970,505      6,970,505
    Long/short hedge funds                                                            15,959,883     15,959,883
    Multi-strategy hedge funds                                                         5,427,163      5,427,163
    Fund of funds                                                                      2,968,555      2,968,555
    Private equity funds                                                               1,231,164      1,231,164

                                         $ 42,866,459          $ 43,082,858       $ 32,557,270     $ 118,506,587

  Liabilities — interest rate swap
   agreement                             $                     $                  $ (1,771,384)    $ (1,771,384)




                                                   - 17 -
                                                                            2010
                                          Quoted Prices            Significant        Significant
                                        in Active Markets             Other          Unobservable
                                       for Identical Assets     Observable Inputs       Inputs
                                             (Level 1)              (Level 2)          (Level 3)             Total
  Investments:
  U.S. equities:
    Large cap growth stocks                $                     $ 21,972,086        $                   $ 21,972,086
    Large cap value stocks                                         14,943,158                              14,943,158
    Mid cap core stocks                        11,487,954                                                  11,487,954
    Mid cap value stocks                        7,642,015                                                   7,642,015
  International equities:
    Developed countries                        16,732,538                                                  16,732,538
  Hedge funds and private equtiy:
    Distressed debt hedge funds                                                           6,475,596         6,475,596
    Long/short hedge funds                                                               17,428,557        17,428,557
    Multi-strategy hedge funds                                                            4,984,767         4,984,767
    Fund of funds                                                                         2,447,360         2,447,360
    Private equity funds                                                                  1,419,717         1,419,717

                                           $ 35,862,507          $ 36,915,244        $ 32,755,997        $ 105,533,748

  Liabilities — interest rate swap
   agreement                               $         -           $        -          $ (2,589,274)       $ (2,589,274)


The Foundation’s investments in common stocks and mutual funds are commonly traded in active
markets; as such, the fair values of these investments are based primarily upon quoted market prices.
Common trust fund values and hedge and private equity fund values are based upon the per unit value of
the fund as reported to the Foundation by the fund manager.

The following table summarizes the liquidity provisions related to the Foundation’s investments in
investment funds, by strategy, that calculate net asset value per share as of June 30, 2011.

                                                                                         Redemption
                                                                                          Frequency           Redemption
                                                                  Unfunded               (if currently          Notice
        Investment Funds by Strategy               Fair Value    Commitments                eligible)           Period
  U.S. equities
    Large cap growth stocks (a)                  $13,400,097         $              Daily                     2 Days
    Large cap value stocks (a)                    13,010,882                        Daily                     2 Days
  International equities
    Emerging markets (b)                            6,405,184                       Monthly                   30 Days
  Real assets
    Commodities and inflation hedges (c)            4,914,132                       Daily-Monthly             2-10 Days
  Global asset allocation
    Opportunistic funds (d)                         5,352,563                       Daily-Monthly             2-45 Days
  Hedge and private equity funds
    Distressed debt hedge funds (e)                 6,970,505                       Quarterly                 65 Days
    Long/short hedge funds (f)                     15,959,883                       Quarterly                 30-90 Days
    Multi-strategy hedge funds (g)                  5,427,163                       Quarterly                 60 Days
    Fund of funds (h)                               2,968,555                       Quarterly-Annually        30-180 Days
    Private equity funds (i)                        1,231,164         68,797

                                                 $75,640,128         $68,797




                                                     - 18 -
(a) This class includes investments in common trust funds that invest primarily in U.S. common
    stocks. Management of these funds attempts to approximate as closely as practicable the
    investment performance of certain published indices. The fair value of the investments in this class
    have been estimated using the values of the underlying investments and the ownership percentage
    of the funds.

(b) This class invests in emerging market equity securities. The manager has the ability to make
    tactical shifts among securities to take advantage of mispricing and relationships between markets.
    The fair value of the investments in this class is estimated using the value of the underlying
    investments and the ownership percentage of the funds.

(c) This class invests in global real assets including commodities, global companies focused on
    commodity production and US TIPS. Management seeks a return of US CPI plus 5%.
    Management has the discretion to make tactical trades within its asset classes seeking returns
    through security/commodity selection. The fair value of the investments in this class have been
    estimated using the underlying investments and the ownership percentage of the funds.

(d) This class invests across a diverse set of asset categories, including foreign and domestic stocks
    and bonds, real assets and currencies. The manager has the ability to make tactical shifts among
    categories to take advantage of mispricing and relationships between global markets. The fair
    value of the investments in this class have been estimated using the net asset value per share of the
    investments.

(e) This class includes investments in hedge funds that invest in fixed income securities of distressed
    or out of favor industries and companies. Management seeks opportunities in bankruptcies,
    restructurings, spin offs, and post-chapter 11 situations. The fair values of the investments in this
    category have been estimated using the net asset value per share of the investments. Liquidity in
    this class is restricted to 25% of the investment at any liquidity date. Withdrawals in excess of this
    amount are satisfied over succeeding liquidity dates, causing a full withdrawal to take up to a year.

(f) This class includes investments in hedge funds that invest both long and short term primarily in
    U.S. common stocks. Management of the hedge funds has the ability to shift investments from
    value to growth strategies, from small to large capitalization stocks, and from a net long position to
    a net short position. The fair values of the investments in this category have been estimated using
    the net asset value per share of the investments.

(g) This class invests in hedge funds that pursue multiple strategies to diversify risks and reduce
    volatility. The hedge funds in this category invest in risk arbitrage, convertible arbitrage, relative
    value arbitrage (pairs trading), and distressed arbitrage. The fair values of the investments in this
    class have been estimated using the net asset value per share of the investments.

(h) This class invests in funds consisting of hedge funds. Management of the funds has the ability to
    shift its investment among funds or into new funds. The fair values of the investments in this class
    have been estimated using the net asset value per share of the investments. Investments
    representing approximately 50% of the value of the assets in this class cannot be redeemed
    because the investments include restrictions that do not allow for redemption during the first three
    years. The remaining restriction for these investments ranges from zero to thirty-one months at
    June 30, 2011.




                                               - 19 -
 (i) This class includes three private equity funds that invest primarily in start up or speculative
     opportunities. These investments cannot be redeemed. Rather, the nature of the investments in this
     class is that distributions are received through the liquidation of the underlying assets of the fund.
     The fair values of the investments in this class have been estimated using recent observable
     transaction information.

The following table presents a reconciliation of the beginning and ending balances of the fair value
measurements using significant unobservable inputs (Level 3), as of June 30:

                                                                            2011
                                                                Net Realized       Purchases,
                                                Beginning     and Unrealized     Issuances and      Ending
                                                 Balance      Gains (Losses)      Settlements,     Balance
                                               July 1, 2010    in Operations           Net       June 30, 2011

  Hedge and private equity funds             $ 32,755,997      $ 3,353,826      $ (3,552,553)    $ 32,557,270
  Interest rate swap agreement                 (2,589,274)        (372,008)        1,189,898       (1,771,384)

                                                                            2010
                                                                Net Realized       Purchases,
                                                Beginning     and Unrealized     Issuances and      Ending
                                                 Balance      Gains (Losses)      Settlements,     Balance
                                               July 1, 2009    in Operations           Net       June 30, 2010

  Hedge and private equity funds             $ 33,169,945      $ 4,363,208      $ (4,777,156)    $ 32,755,997
  Interest rate swap agreement                 (3,031,813)      (1,438,113)        1,880,652       (2,589,274)

There were no financial assets or liabilities transferred into or out of the Level 3 category for any of the
periods presented.

As of June 30, 2011, total net realized and unrealized gains recorded in the consolidated statements of
activities relating to hedge and private equity funds are $3.4 million, of which $518,600 are net
unrealized gains. As of June 30, 2011, total net realized and unrealized losses recorded in the
consolidated statements of activities relating to the interest rate swap agreement are $372,000, of which
$1.2 million are realized losses included as a component of interest expense and $817,900 are unrealized
gains included as unrealized gain on interest rate swap.

The Foundation follows the provisions of FASB ASC 825, Financial Instruments, which requires
disclosure of fair value information for both financial instruments reported in the financial statements
and off-balance-sheet financial instruments. The estimated fair value amounts have been determined by
management using available market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data to develop the estimates of fair value. The use
of different market assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents — Due to their short-term
and liquid nature, cash and cash equivalents and restricted cash and cash equivalents have a fair value
which approximates their carrying value.

Interest, Grants, and Accounts Receivable — The Foundation’s interest, grants, and accounts
receivable, which are primarily short-term in nature, maintain a fair value which approximates their
carrying value.




                                                 - 20 -
Investments — See above for a detailed description of the fair values of investments, including a
comparison of carrying value and fair value and a description of the methods used to arrive at the fair
value, by type of investment.

Student Loans Held for Sale — The fair value of student loans held for sale is the principal amount
outstanding, as these loans were sold within 90 days subsequent to the balance sheet date.

Student Loans Receivable — Net — Loans are categorized by status (in-school, grace, repayment, and
delinquent). The fair value was estimated in 2011 and 2010 by reference to sale information from the
marketplace and by discounting the future cash flows using current rates of return required by investors
in similar assets.

Interest Payable, Accounts Payable, and Accrued Expenses — The Foundation’s interest payable,
accounts payable, and accrued expenses, which are primarily short-term in nature, have a fair value
which approximates their carrying value.

Bonds, Notes, and Borrowings under Line of Credit — The Foundation’s bonds, notes, and line of
credit consist of variable rate debt. Due to disruptions in the United States capital markets, there is not a
current active market for the Foundation’s bonds. The estimated fair value of bonds and notes was
determined by discounting the cash flows of each separate bond series using current market rates,
including a liquidity discount due to the status of the auction rate bond market.

Due to the short-term nature of the borrowings under the line of credit, the fair value approximates its
carrying value.

Borrowings under Federal Participation Program – The fair value of the borrowings under the
federal participation program is the principal amount outstanding, as these obligations will be settled
within 90 days subsequent to the balance sheet date.

Interest Rate Swap Agreement — The interest rate swap agreement is a complex financial instrument
consisting of both an interest rate swap and an option contract. The valuation of this instrument was
determined using widely accepted valuation techniques including discounted cash flow analysis on the
expected cash flows of the swap. This analysis reflected the contractual terms of the swap, including the
period to maturity and used observable market-based inputs, including interest rate curves.




                                                 - 21 -
     The following table compares the carrying value to the fair value of the Foundation’s financial
     instruments as of June 30 (in thousands).

                                                              2011                           2010
                                                   Carrying            Fair       Carrying            Fair
                                                   Amount             Value       Amount             Value

       Financial assets:
        Cash and cash equivalents                $ 17,389        $ 17,389        $ 11,645       $ 11,645
        Accounts receivable                         2,440           2,440           2,077          2,077
        Interest and grants receivable              8,594           8,594           8,186          8,186
        Investments                               118,507         118,507         105,534        105,534
        Restricted cash and cash equivalents       27,758          27,758          42,614         42,614
        Student loans held for sale                                                36,290         36,290
        Student loans receivable — net             467,091           439,947      433,217        400,660

       Financial liabilities:
        Bonds and notes payable, net               496,764           418,694      475,600           395,956
        Borrowings under line of credit                                             1,211             1,211
        Borrowings under federal
         participation program                                                      35,775           35,775
        Interest payable                                386              386           394              394
        Interest rate swap agreement                  1,771            1,771         2,589            2,589
        Accounts payable and accrued
         expenses                                     9,128            9,128        10,219           10,219

9.   EMPLOYEE BENEFIT PLANS

     The Foundation maintains a 401(k) plan (the Plan). The Plan is available to eligible employees, as
     defined. Employer contributions to the Plan include non-discretionary contributions of 3%, matching
     contributions of 50% of employee pre-tax deferrals up to a maximum of 4% and discretionary retirement
     contributions as determined by the Board of Directors. The Foundation’s profit sharing and
     401(k) expense for the years ended June 30, 2011 and 2010, approximated $853,000 and $575,000,
     respectively.

10. COMMITMENTS AND CONTINGENCIES

     The Foundation leases office space and certain equipment under operating lease agreements, which
     expire between January 2012 and December 2021. Net rent expense for the office space and equipment
     operating leases amounted to approximately $643,000 and $789,000 for the fiscal years ended June 30,
     2011 and 2010, respectively.

     The future minimum lease payments under such leases are as follows (in thousands):

       June 30

       2012                                                                                            $ 487
       2013                                                                                               596
       2014                                                                                               493
       2015                                                                                               450
       2016                                                                                               439
       Therafter                                                                                        2,227



                                                    - 22 -
   The Foundation has entered into three investment subscription agreements totaling $3 million. As of
   June 30, 2011, the Foundation has funded $2.93 million of these investments. The remaining $68,797
   will be recorded as additional investment securities when funded.

   In the normal course of business, the Foundation may become involved in legal proceedings. The
   Foundation accrues a liability for such matters when it is probable that a liability has been incurred and
   the amount can be reasonably estimated. When only a range of possible loss can be established, the most
   probable amount in the range is accrued. If no amount within this range is a better estimate than any
   other amount within the range, the minimum amount in the range is accrued. Management believes,
   after conversation with counsel, that no matters currently pending would, in the event of an adverse
   outcome, have a material impact on the Foundation's consolidated financial position, activities or
   liquidity.

11. TEMPORARILY RESTRICTED NET ASSETS

   During the years ended June 30, 2011 and 2010, the Foundation received contributions and grants that
   contained donor imposed restrictions on the use of the contributed funds. As of June 30, 2011 and 2010,
   the Foundation had temporarily restricted net assets totaling $4.2 million and $3.6 million, respectively,
   restricted for various programs (in thousands):

                                                                                         2011       2010

     High school redesign                                                            $            $ 302
     New technology network                                                              2,985     2,050
     Strive                                                                              1,042       986
     College access and success
     Education policy institute                                                           120        122
     Organizational learning & innovation                                                  42        169

     Total temporarily restricted net assets                                         $ 4,189      $ 3,629

12. SUBSEQUENT EVENTS

   The Foundation has evaluated subsequent events through October 28, 2011, the date the consolidated
   financial statements were available to be issued, to determine if either recognition or disclosure of
   significant events or transactions is required. See below for disclosure of such items.

   Since June 30, 2011, KFO, the National Program and KWF 2010 made principal repayments on bonds
   outstanding totaling $9.7 million, $1.8 million and $1.3 million, respectively.

   On August 17, 2011, one of two rating agencies downgraded the variable rate tax-exempt senior bonds
   from Baa1 to Caa3. On September 7, 2011, the second rating agency downgraded the variable rate tax-
   exempt senior bonds from AAA to BB and the variable rate tax-exempt subordinate bonds from BB to
   CCC. As a result, the interest rate on the variable rate tax-exempt senior bonds increased from 200% of
   the Bond Market Association Index Rate (BMA) to 265%. The rate on the variable rate tax-exempt
   subordinate bonds remains at 265% of the BMA.

                                               ******




                                                  - 23 -
SUPPLEMENTAL SCHEDULES




         - 24 -
KNOWLEDGEWORKS FOUNDATION

CONSOLIDATING STATEMENT OF FINANCIAL POSITION INFORMATION
AS OF JUNE 30, 2011


                                                                                     Student Loan Programs                                                     Knowledge          Knowledge
                                            National                                                                                                             Works              Works
                                            Program           KW2010           KWSL               KFO             SLW   Eliminations           Total           Foundation        Consolidated
ASSETS
CASH AND CASH EQUIVALENTS               $                $                $ 1,062,085      $                  $         $               $     1,062,085    $ 16,326,447      $ 17,388,532
ACCOUNTS RECEIVABLE                                                            138,520                                      (138,520)                            2,439,548         2,439,548
INTEREST RECEIVABLE:
 Investments                                                                                                                                                       12,858             12,858
 Student loans                               1,279,459        1,722,296                          4,384,157                                    7,385,912                            7,385,912
GRANTS RECEIVABLE                                                                                                                                                1,194,989         1,194,989
INVESTMENTS — At fair value                                                                                                                                    118,506,587       118,506,587
RESTRICTED CASH AND INVESTMENTS              2,825,254        2,717,625                         15,215,554                                   20,758,433          7,000,000        27,758,433
STUDENT LOANS RECEIVABLE — Net              85,301,100       74,068,981                        299,845,369                  7,875,777       467,091,227                          467,091,227
DEFERRED FINANCING COSTS — Net                369,794          754,890                           1,594,081                                    2,718,765                            2,718,765
OTHER                                                                                                                                                             303,102            303,102
PROPERTY AND EQUIPMENT — Net                                                       642                                                             642           1,149,003         1,149,645
TOTAL                                   $ 89,775,607     $ 79,263,792     $ 1,201,247      $ 321,039,161      $         $ 7,737,257     $ 499,017,064      $ 146,932,534     $ 645,949,598

LIABILITIES AND NET ASSETS
ACCOUNTS PAYABLE AND ACCRUED EXPENSES   $     625,521    $     529,262    $      2,742     $     1,903,778    $         $ (138,520)     $     2,922,783    $     6,205,142   $     9,127,925
INTEREST PAYABLE                              188,826           93,734                            103,254                                      385,814                               385,814
INTEREST RATE SWAP AGREEMENT                 1,771,384                                                                                        1,771,384                            1,771,384
DEFERRED REVENUE                                                                                                                                                 3,270,750         3,270,750
ARBITRAGE REBATE LIABILITY                                                                        424,075                                      424,075                               424,075
BONDS AND NOTES PAYABLE— Net                86,500,000       77,664,491                        332,600,000                                  496,764,491                          496,764,491
COMMITMENTS AND CONTINGENCIES
     Total liabilities                      89,085,731       78,287,487          2,742         335,031,107                  (138,520)       502,268,547          9,475,892       511,744,439

UNRESTRICTED NET ASSETS                       689,876          976,305        1,198,505        (13,991,946)                 7,875,777        (3,251,483)       133,267,253       130,015,770
TEMPORARILY RESTRICTED NET ASSETS                                                                                                                                4,189,389         4,189,389
     Total net assets                         689,876          976,305        1,198,505        (13,991,946)                 7,875,777        (3,251,483)       137,456,642       134,205,159
TOTAL                                   $ 89,775,607     $ 79,263,792     $ 1,201,247      $ 321,039,161      $         $ 7,737,257     $ 499,017,064      $ 146,932,534     $ 645,949,598




                                                                                      - 25 -
KNOWLEDGEWORKS FOUNDATION

CONSOLIDATING STATEMENT OF FINANCIAL POSITION INFORMATION
AS OF JUNE 30, 2010


                                                                                    Student Loan Programs                                                     Knowledge                         Knowledge
                                              National                                                                                                          Works                             Works
                                              Program             KWSL               KFO                  SLW        Eliminations             Total           Foundation    Eliminations       Consolidated
ASSETS
CASH AND CASH EQUIVALENTS                $          -       $     197,980     $          -         $         -       $         -       $      197,980     $ 11,446,815      $         -       $ 11,644,795
ACCOUNTS RECEIVABLE                                               137,602            213,637              68,075          (419,314)                             5,815,554       (3,738,781)      2,076,773
INTEREST RECEIVABLE:
 Investments                                                                                                                                                      24,393                            24,393
 Student loans                                 1,243,730                            5,033,585            877,600                             7,154,915                                           7,154,915
GRANTS RECEIVABLE                                                                                                                                               1,006,850                        1,006,850
INVESTMENTS — At fair value                                                                                                                                   105,533,748                      105,533,748
RESTRICTED CASH AND INVESTMENTS                9,783,066                           25,506,918            323,802                            35,613,786          7,000,459                       42,614,245
STUDENT LOANS HELD FOR SALE                                                                            36,290,409                           36,290,409                                          36,290,409
STUDENT LOANS RECEIVABLE                      94,725,491                          340,475,498                            (1,983,697)       433,217,292                                         433,217,292
DEFERRED FINANCING COSTS — Net                  451,325                             1,828,285                                                2,279,610                                           2,279,610
OTHER                                                              59,694                                  1,813                               61,507            394,517                           456,024
PROPERTY AND EQUIPMENT — Net                                       16,247                                                                      16,247           1,572,426                        1,588,673
TOTAL                                    $ 106,203,612      $     411,523     $ 373,057,923        $ 37,561,699      $ (2,403,011)     $ 514,831,746      $ 132,794,762     $ (3,738,781)     $ 643,887,727

LIABILITIES AND NET ASSETS
ACCOUNTS PAYABLE AND ACCRUED EXPENSES    $      667,415     $ 3,846,582       $     2,925,575      $     607,327     $ (419,314)       $     7,627,585    $     6,330,250   $ (3,738,781)     $ 10,219,054
INTEREST PAYABLE                                228,339                              165,897                                                  394,236                                              394,236
INTEREST RATE SWAP AGREEMENT                   2,589,274                                                                                     2,589,274                                           2,589,274
BORROWINGS UNDER LINE OF CREDIT                                                                         1,211,400                            1,211,400                                           1,211,400
BORROWINGS UNDER FEDERAL PARTICIPATION
 PROGRAM                                                                                               35,775,144                           35,775,144                                          35,775,144
DEFERRED REVENUE                                                                                                                                                1,058,000                        1,058,000
ARBITRAGE REBATE LIABILITY                                                          2,354,561                                                2,354,561                                           2,354,561
BONDS AND NOTES PAYABLE                      103,000,000                          372,600,000                                              475,600,000                                         475,600,000
COMMITMENTS AND CONTINGENCIES
     Total liabilities                       106,485,028        3,846,582         378,046,033          37,593,871         (419,314)        525,552,200          7,388,250       (3,738,781)    529,201,669

UNRESTRICTED NET ASSETS                         (281,416)       (3,435,059)        (4,988,110)            (32,172)       (1,983,697)       (10,720,454)       121,777,373                      111,056,919
TEMPORARILY RESTRICTED NET ASSETS                                                                                                                               3,629,139                        3,629,139
     Total net assets                           (281,416)       (3,435,059)        (4,988,110)            (32,172)       (1,983,697)       (10,720,454)       125,406,512             -        114,686,058
TOTAL                                    $ 106,203,612      $     411,523     $ 373,057,923        $ 37,561,699      $ (2,403,011)     $ 514,831,746      $ 132,794,762     $ (3,738,781)     $ 643,887,727


                                                                                                - 26 -
KNOWLEDGEWORKS FOUNDATION

CONSOLIDATING STATEMENT OF ACTIVITIES INFORMATION
FOR THE YEAR ENDED JUNE 30, 2011


                                                                                                     Student Loan Programs — Unrestricted                                               KnowledgeWorks Foundation             Knowledge
                                                                    National                                                                                                                           Temporarily              Works
                                                                    Program          KW2010          KWSL             KFO               SLW       Eliminations          Total           Unrestricted    Restricted           Consolidated
REVENUES (EXPENSES):
 Income on investments                                          $        522     $         47    $             $      623,877     $           1   $               $     624,447     $      522,684     $                 $     1,147,131
 Income on notes receivable
 Interest and fees on student loans receivable                      3,495,104        2,398,001                       6,869,702        149,766     (1,019,904)         11,892,669           341,933                            12,234,602
 Gain (loss) on the sale of student loans                                                                          (10,880,059)       550,598     10,879,378             549,917                                                 549,917
 Grant revenue                                                                                                                                                                              219,056        4,651,498           4,870,554
 Contract service revenue                                                                                                                                                                 9,719,285                            9,719,285
 Unrealized and realized gains on investment securities — net                                                                                                                            24,307,333                           24,307,333
 Administrative fee income (expense)                                (360,000)        (145,750)    2,206,347         (1,640,855)       (489,742)                         (430,000)           430,000
 Net assets released from restriction                                                                                                                                                     4,091,248        (4,091,248)
      Total revenues (expenses)                                     3,135,626        2,252,298    2,206,347         (5,027,335)       210,623         9,859,474       12,637,033         39,631,539          560,250          52,828,822
COST OF DEBT:
 Interest expense                                                   2,547,532         798,158                       2,200,672          88,709                          5,635,071                                               5,635,071
 Amortization of deferred costs                                        81,531         113,997                         234,204                                            429,732                                                 429,732
 Remarketing expenses                                                 149,254                                         172,914                                            322,168                                                 322,168
      Total cost of debt                                            2,778,317         912,155                       2,607,790          88,709                          6,386,971                                               6,386,971
      Net revenue (expense) after cost of debt                       357,309         1,340,143    2,206,347         (7,635,125)       121,914         9,859,474        6,250,062         39,631,539          560,250          46,441,851
PROVISION FOR STUDENT LOAN LOSS                                       (66,781)       (211,312)                       (278,402)                                          (556,495)                                               (556,495)
UNREALIZED GAIN ON INTEREST RATE SWAP                                817,890                                                                                            817,890                                                  817,890
PROGRAM AND SUPPORTING EXPENSES:
 Program services:
  High school redesign                                                                                                                                                                    3,536,363                            3,536,363
  New technology network                                                                                                                                                                  8,021,862                            8,021,862
  Strive                                                                                                                                                                                  3,255,439                            3,255,439
  Grantmaking                                                                                                                                                                               434,689                              434,689
  Organizational learning & innovation                                                                                                                                                    1,081,850                            1,081,850
  Strategic advancement                                                                                                                                                                     776,945                              776,945
  Education policy institute                                                                                                                                                              1,803,343                            1,803,343
  Student loan programs                                              137,126          152,526     1,462,408         1,090,309         137,322                          2,979,691            204,368                            3,184,059
 General and administrative                                                                                                                                                               5,089,595                            5,089,595
      Total program and supporting expenses                          137,126          152,526     1,462,408         1,090,309         137,322                          2,979,691         24,204,454                           27,184,145
TRANSFER OF NET ASSETS                                                                            3,889,625                            47,580                          3,937,205         (3,937,205)
INCREASE (DECREASE) IN NET ASSETS                                    971,292          976,305     4,633,564         (9,003,836)        32,172         9,859,474        7,468,971         11,489,880          560,250          19,519,101
NET ASSETS — Beginning of year                                      (281,416)                    (3,435,059)        (4,988,110)        (32,172)   (1,983,697)     (10,720,454)          121,777,373        3,629,139         114,686,058
NET ASSETS — End of year                                        $ 689,876        $ 976,305       $1,198,505    $ (13,991,946)     $               $ 7,875,777     $ (3,251,483)     $ 133,267,253      $ 4,189,389       $ 134,205,159




                                                                                                               - 27 -
KNOWLEDGEWORKS FOUNDATION

CONSOLIDATING STATEMENT OF ACTIVITIES INFORMATION
FOR THE YEAR ENDED JUNE 30, 2010


                                                                                                  Student Loan Programs — Unrestricted                                          KnowledgeWorks Foundation             Knowledge
                                                                    National                                                                                                                   Temporarily              Works
                                                                    Program           KWSL                  KFO               SLW       Eliminations            Total           Unrestricted    Restricted           Consolidated
REVENUES (EXPENSES):
 Income on investments                                          $      5,236    $         -          $     225,275      $        10     $         -       $     230,521     $      812,761     $       2,112     $     1,045,394
 Income on notes receivable
 Interest and fees on student loans receivable                      4,004,234                            5,535,884          459,642           127,234         10,126,994           380,119                            10,507,113
 Gain on the sale of student loans                                                                                          290,361            (4,745)           285,616                                                 285,616
 Grant revenue                                                                                                                                                                      513,014        3,813,652           4,326,666
 Contract service revenue                                                                                                                                                         5,578,399                            5,578,399
 Unrealized and realized gains on investment securities — net                                                                                                                    13,055,859                           13,055,859
 Administrative fee income (expense)                                (360,000)       2,805,446            (1,913,401)        (962,045)                           (430,000)           430,000                                  -
 Net assets released from restriction                                                                                                                                             7,619,252        (7,619,252)               -
      Total revenues (expenses)                                     3,649,470       2,805,446            3,847,758          (212,032)         122,489         10,213,131         28,389,404        (3,803,488)        34,799,047
COST OF DEBT:
 Interest expense                                                   3,350,007                            2,175,678          271,046                            5,796,731                                               5,796,731
 Amortization of deferred costs                                        55,729                              281,057                                               336,786                                                 336,786
 Other debt related costs                                                                                                    22,889                               22,889                                                  22,889
 Remarketing expenses                                                171,730                                59,502                                               231,232                                                 231,232
      Total cost of debt                                            3,577,466             -              2,516,237          293,935               -            6,387,638               -                 -             6,387,638
      Net revenue (expense) after cost of debt                        72,004        2,805,446            1,331,521          (505,967)         122,489          3,825,493         28,389,404        (3,803,488)        28,411,409
PROVISION FOR STUDENT LOAN LOSS                                     (662,222)                             (160,322)                                             (822,544)                                               (822,544)
UNREALIZED GAIN ON INTEREST RATE SWAP                                442,539                                                                                    442,539                                                  442,539
PROGRAM AND SUPPORTING EXPENSES:
 Program services:
  High school redesign                                                                                                                                                            6,151,800                            6,151,800
  New technology network                                                                                                                                                          7,593,680                            7,593,680
  Strive                                                                                                                                                                          2,257,341                            2,257,341
  College access and success                                                                                                                                                        235,931                              235,931
  Grantmaking                                                                                                                                                                       372,246                              372,246
  Organizational learning & innovation                                                                                                                                            1,096,053                            1,096,053
  Strategic advancement                                                                                                                                                             589,102                              589,102
  Education policy institute                                                                                                                                                        750,168                              750,168
  Student loan programs                                              452,401        1,920,094            1,594,939          280,361                            4,247,795            642,249                            4,890,044
 General and administrative                                                                                                                                                       5,213,687                            5,213,687
      Total program and supporting expenses                          452,401        1,920,094            1,594,939          280,361               -            4,247,795         24,902,257              -            29,150,052
TRANSFER OF NET ASSETS                                                               (962,045)                              962,045                                                                                         -
INCREASE (DECREASE) IN NET ASSETS                                   (600,080)         (76,693)            (423,740)         175,717           122,489           (802,307)         3,487,147        (3,803,488)        (1,118,648)
NET ASSETS — Beginning of year                                       318,664        (3,358,366)          (4,564,370)        (207,889)       (2,106,186)       (9,918,147)       119,657,475        7,190,766         116,930,094
NET ASSETS FROM BUSINESS COMBINATION                                                                                                                                             (1,367,249)         241,861          (1,125,388)
NET ASSETS — End of year                                        $ (281,416)     $ (3,435,059)        $ (4,988,110)      $ (32,172)      $ (1,983,697)     $ (10,720,454)    $ 121,777,373      $ 3,629,139       $ 114,686,058


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