Note 1 - Summary of Significant Accounting Policies
Nature of business: Meredith College (the “College”) provides a liberal arts undergraduate to females and graduate co-educational programs to students from principally the southeast region of the United States of America.

A summary of the College’s significant accounting policies follows:

Basis of presentation: The financial statements of the College have been prepared on the accrual basis of accounting. In preparing its financial statements, the College’s net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the College and changes therein are classified and reported as follows:

Unrestricted net assets - Net assets that are not subject to donor-imposed stipulations.

Temporarily restricted net assets - Net assets subject to donor-imposed stipulations that may or will be met either by actions of the College and/or by the passage of time.

Permanently restricted net assets - Net assets subject to donor-imposed stipulations that they be maintained permanently by the College. Generally, the donors of these assets permit the College to use all or part of the earnings on related investments for general or specific purposes.

Use of estimates in preparation of financial statements: The preparation of financial statements in accordance 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents: For purposes of reporting cash flows, the College considers all highly liquid investments purchased with an initial maturity of three months of less to be cash equivalents unless they are designated or restricted for long-term purposes or permanently restricted. At times, the College maintains deposits with high credit quality financial institutions in amounts that are in excess of the federal depository insurance limit, but believes that such deposits pose no significant credit risk. Temporarily restricted cash at June 30, 2007 and 2006 was $5,344,463 and $6,321,638, respectively.

Accounts receivable: Student accounts receivable are carried at the original amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a periodic basis. Management determines this allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Student receivables are written off when deemed uncollectible. Recoveries of student receivables previously written off are recorded when received.

Student receivables are considered past due if any portion of the receivable balance is outstanding for more than 90 days. Interest is not charged on student receivables.

Investments: Investments (including those held in charitable remainder trusts) are generally reported at fair value based upon quoted market prices determined at the financial statement date. In the case of certain less marketable investments, principally private equity investments, fair value is established based on a reasonable methodology that exists to capture and quantify changes in value. One investment is held in a limited partnership which is valued based on a pro rata share of the equity in the partnership. Unrealized and realized gains and losses and dividends and interest income from investing in income producing assets may be included in any of these net asset classifications depending on donor restrictions.

Interest rate swap agreement: The College is utilizing a derivative financial instrument to reduce its exposure to changes in the interest rate. The College does not hold or issue derivative financial instruments for trading purposes. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Changes in the fair value of those instruments are reported as a change in net assets in the statement of activities.

Debt issue costs: Qualified costs incurred in connection with new debt are deferred and amortized to income over the term of the related debt by the interest method.

Inventory: Bookstore inventory is valued at the lower of cost (first-in, first-out method) or market.

Property and equipment: The College’s capitalization threshold is $1,000. Property and equipment, including real estate held for investment, acquired or constructed prior to June 30, 1980 is stated at estimated historical cost. Subsequent additions and disposals have been recorded at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:

The College evaluates, on an on-going basis, the carrying value of property and equipment based on estimated future undiscounted cash flows. In the event such cash flows are not expected to be sufficient to recover the carrying value of the assets, the useful lives of the assets are revised or the assets are written down to their estimated fair values.

Deferred income:Deferred income, which is included in accounts payable and other accrued expenses on the statement of financial position, represents the portion of student tuition and fees for summer programs which have been billed as of June 30 of each year, but not earned.

Split interest agreements: The College accepts gifts subject to split interest agreements. These gifts may be in the form of annuities, charitable lead trusts, or charitable remainder trusts and they provide for the payment of distributions to the grantor or other designated beneficiaries over the designated beneficiary’s lifetime. At the end of the trust’s term, the remaining assets are available for the College’s use. At the time of receipt, a gift is recorded based upon the fair value of assets donated less any applicable liabilities. Liabilities include the present value of projected future distributions to the annuity or trust beneficiary and are determined using appropriate discount rates (6.2% at June 30, 2007). On an annual basis, the College revalues the liability for future payments to beneficiaries based on actuarial assumptions.

Contributions: Unconditional contributions received are recognized as revenues at their fair values when they are received. Contributions with donor-imposed restrictions are recorded as temporarily restricted net assets until the restrictions are met or as permanently restricted net assets. At the time temporary restrictions are met, they are reported as net assets released from restrictions. Contributions received with donor-imposed restrictions are reported as unrestricted when the donor-imposed restrictions are satisfied in the same reporting period as the receipt of the contributions.

Unconditional promises to give that are expected to be collected within one year are recorded at their net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of estimated future cash flows after an allowance for estimated uncollectible contributions is provided. The discounts on those amounts are computed using an appropriate interest rate applicable to the year in which the promise is received. Amortization of the discount is included in contribution revenue. Conditional promises to give are not included as support until such time as the conditions are substantially met.

Cash or other assets whose purpose is to acquire long-lived assets are recorded as unrestricted if the College has internally designated such assets or restricted if such assets represent gifts received with donor imposed restrictions. Once acquired, all long-lived assets, primarily property and equipment, are also recorded as unrestricted net assets. Gifts of long-lived assets are reported as unrestricted revenue unless explicit donor stipulations specify how the donated assets must be used. Gifts specified for the acquisition, or construction of long-lived assets are generally reported as additions to unrestricted net assets when the assets are placed into service.

Income taxes: The Internal Revenue Service has ruled that the College qualifies under Section 501(c) (3) of the Internal Revenue Code and is, therefore, not generally subject to income taxes under present tax laws. Management believes that income tax liability resulting from unrelated business income, if any, for the years ended June 30, 2007 and 2006 would not have a significant impact on the College’s results of activities.

Investment expense: The College reports investment income net of the related investment expense. Total investment expense was $126,930 and $85,511 for the years ended June 30, 2007 and 2006, respectively.

Fair value disclosures: The carrying amounts of accounts receivable and accounts payable approximate fair value due to their short-term nature. The carrying amount of bonds payable approximates fair value due to their stated interest rate approximating a market rate. These estimated fair value amounts have been determined using available market information or other appropriate valuation methodologies. Investments are generally carried at fair value.

Statement of activities: The statement of activities includes operating revenues and gains over (under) expenses. Transactions deemed by management to be ongoing, major and central to the provision of education, research and academic support and student services are reported as operating revenues and expenses. Changes in unrestricted net assets, which are excluded from operations, include excess of actual investment return over spending rate policy, loss on interest rate swap agreements, and other items that are deemed to be unrelated and not central to the educational mission of the College.

Reclassifications: In certain instances, amounts previously reported in 2006 financial statements have been reclassified to conform to 2007 presentation. Such reclassifications had no effect on net assets or change in net assets as previously reported.

Concentrations of credit risk: Financial instruments that potentially subject the College to credit risk are primarily student accounts receivable. The College grants credit to its students and their parents for tuition and fees based upon the amount of financial aid available to the students, and establishes an allowance for doubtful accounts based upon the age of the receivable and other factors. The majority of students come from the southeast United States. However, the College attracts students from throughout the country and abroad.

Institutional advancement expenses: The College incurred expenses related to institutional advancement and fundraising amounting to $753,943 and $725,237 during the years ended June 30, 2007 and 2006, respectively. Such amounts are included in institutional support expenses in the accompanying statements of activities.

Note 2 - Contributions Receivable
Unconditional promises to give are included in the financial statements as contributions receivable and revenue of the appropriate net asset category. Contributions expected to be received in periods greater than one year are recorded at the discounted present value of the future cash flows, using Treasury bill rates for similar term investments. The applicable rates at June 30, 2007 and 2006 were 5.40% to 5.47% and 5.18% to 5.23%, respectively.

Unconditional promises to give are expected to be realized in the following periods:

Note 3 - Investments
Investments, excluding investments held in charitable remainder trusts, at June 30, 2007 and 2006 are as follows:

The College invests in a combination of stocks, fixed income securities, money market funds and other investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect the College’s investment balance reported in the statements of financial position.

Alternative investments at June 30, 2007 and 2006 represent the College’s investment in three timber funds and three multi-strategy hybrid fund of funds that employ a variety of low volatility, absolute return oriented strategies designed to achieve consistent returns which are not dependent upon a rising equity market or correlated with the major stock or bond markets. The funds employ a multi-strategy, multi-manager investment approach using traditional and nontraditional alternative strategies. The College has certain restrictions for withdrawal of funds that generally require 60-90 days notice. The College’s equity in all funds is less than 5% of each fund’s participant equity.

With respect to endowment funds, state law allows the Board to appropriate as much of the net appreciation as is prudent considering the College's long- and short-term needs, present and anticipated financial requirements, expected total return on its investments, price level trends, and general economic conditions. Under the College's endowment spending policy, 5 percent of the average fair value of the endowment investments as of December 31 of the previous three years is appropriated to support current operations.

The following schedules summarize the investment return and its classification in the statements of activities:

Note 4 - Investments Held in Trusts
The College has been named as a beneficiary in several charitable trusts in which the College is the trustee. Trust investments are carried at fair value based on quoted market prices, and the liability under the trust agreement is recorded at the present value of expected future payments to be made to the beneficiary. Investments held in trusts at June 30, 2007 and 2006 consisted of the following:

Amounts entitled Due to donors of trusts are recorded on the statement of financial position for the required life annuity payments at the present value of expected future cash payments discounted using current interest rates and actuarial assumptions for those annuities that have not been reinsured. The annuity obligations are adjusted each year for changes in the life expectancy of the beneficiaries and are reduced either as payments are made to the donor or as annuities are reinsured. The present value of future payment liabilities of charitable gift annuities was $300,473 and $307,043 at June 30, 2007 and 2006, respectively.

Note 5 – Contributions Receivable from Charitable Trusts
The College has been named as a beneficiary in several charitable trusts in which the College is not the trustee. When the College is notified of the existence of the trust, a receivable and contribution revenue are recorded at the present value of the estimated future cash receipts. It is the College's policy not to record contributions receivable from trusts if the trust is revocable or if the donor retains the unilateral right to change beneficiaries. A noncurrent asset for the charitable remainder trusts has been recognized at the present value of the expected future cash flow payments discounted at a rate of 6.2% and 6.0% for June 30, 2007 and 2006, respectively. The expected future cash flow represents the College’s share of the fair market value of the trust principal at June 30, 2007 and 2006. Changes in the value of the trust have been reported in the statement of activities as increases in temporarily restricted net assets.

Note 6 - Interest Rate Swap Agreement
The College has an interest rate swap agreement that was entered into as a hedge of cash flow variability caused by changes in interest rates on variable rate bonds issued in 2001. The differential interest required to be paid or that will be received under this agreement is accrued consistent with the terms of the agreement and is recognized in interest expense as accrued. Generally accepted accounting principles require derivative instruments, such as interest rate swap agreements, to be recognized at fair value as either assets or liabilities in the statement of financial position.

On June 26, 2002, the College entered into an interest rate swap agreement to potentially reduce its debt service requirements on a predetermined amount of the outstanding principal of the Series 2001 Bonds (Note 11). The original notional amount of the swap agreement was $7,100,000. The variable interest rate to be paid by the College is published weekly by the BMA Municipal Bond Index. At June 30, 2007 and 2006, the College was paying an interest rate of 3.73% and 3.97%, respectively, and receiving an interest rate of 3.583% under the swap agreement.

The fair value of the swap agreement was a liability of $8,756 and $51,824 (recorded in other accrued expenses) at June 30, 2007 and 2006, respectively. The fair value of the swap agreement is estimated by Lehman Brothers Special Financing, Inc. by discounting an estimate of the amounts of interest to be paid and an estimate of the amounts of interest to be received during the swap agreement period. The College is exposed to credit losses in the amount of nonperformance by the counterparty to the interest rate swap agreement. However, the College does not anticipate nonperformance by the counterparty. The interest rate swap agreement terminates on June 26, 2009.

Note 7 - Property and Equipment
The composition of property and equipment at June 30, 2007 and 2006 is as follows:

Depreciation expense was $3,546,114 in 2007 and $3,312,411 in 2006. At June 30, 2006, the College had construction commitments of approximately $550,000 in connection with three renovation projects. There were no outstanding construction commitments at June 30, 2007.

Note 8 - Line of Credit
The College entered into an agreement with a bank for a line of credit to renovate dorms and classroom buildings. The line provided the College with a $4,500,000 credit line which expires on December 1, 2008. The line of credit bears interest at 7.05% at June 30, 2007 (the LIBOR Market Index Rate plus 1.65%). Proceeds from this line of credit are to be used to finance renovations to dorms and various classrooms. The amount outstanding on the line of credit at June 30, 2007 was $4,500,000. The line of credit agreement provides for certain restrictive covenants and reporting requirements. The College was in compliance with the covenants at June 30, 2007.

Note 9 - Notes Payable
The College’s notes payable are collateralized by certain computer equipment with a net book value of approximately $388,000 at June 30, 2007 and $397,000 at June 30, 2006 and require monthly principal and interest installments totaling $59,224. The notes have interest rates of ranging from 6.9% to 10.3% and mature at various dates in fiscal years 2007 and 2008, respectively.

Principal payments over the next two fiscal years are as follows:

Note 10 - Postretirement Benefit Plan
The College sponsors a defined benefit plan, a postretirement health care plan, for all employees that meet eligibility requirements. The plan is noncontributory and unfunded. The annual measurement date for the plan is July 1. The following tables provide further information about this plan:

Net periodic postretirement benefit costs included the following components for the years ended June 30, 2007 and 2006:

Obligations and funded status:

The following table sets forth the plan's funded status reconciled with the liability recognized in the accompanying statements of financial position at June 30, 2007 and 2006:

For measurement purposes, an 8.0% annual rate of increase in per capita health care costs of covered benefits was assumed for 2007 and 2006, with such annual rate of increase gradually declining to 5.0% in 2010. If assumed health care cost trend rates were increased by 1 percentage point in each year, the accumulated postretirement benefit obligation at June 30, 2007 and 2006 would be increased by $1,392,900 and $1,356,454, respectively, and the aggregate of the service and interest cost components of net periodic postretirement benefit costs for the year ended June 30, 2007 and 2006 would be increased by $182,081 and $214,439, respectively.

If assumed health care cost trend rates were decreased by 1 percentage point in each year, the accumulated postretirement benefit obligation at June 30, 2007 and 2006 would be decreased by $1,145,411 and $1,101,043, respectively, and the aggregate of the service and interest cost components of net periodic postretirement benefit costs for the year ended June 30, 2007 and 2006 would be decreased by $182,081 and $169,435.

The weighted average discount rate used in estimating the accumulated postretirement benefit obligation at both June 30, 2007 and 2006 was 6.25%.

Plan Assets:

The plan is unfunded and, therefore, there are no plan assets.

Cash Flows:

The College does not expect to make a contribution to the plan in fiscal year 2008. The following table provides benefit payments, which reflect expected future service as appropriate, are expected to be paid.

Note 11 - Bonds Payable
During 2002, the North Carolina Capital Facilities Finance Agency (the “Agency”), pursuant to a trust agreement between the Agency and a bank (the “Trustee”), issued serial and term bonds in the amount of $31,840,000. The Agency loaned the proceeds of the bonds to the College pursuant to a loan agreement between the Agency and the College in which the College is obligated to make payments to the Agency in amounts sufficient to pay the principal and interest on the bonds. The bonds have a defined, but varying interest rates ranging from 3.30% to 5.125%, payable semiannually and mature at various dates through 2031. The proceeds from these borrowings were used to fund the construction of and various upgrades related to a new building to house the Mathematics and Science department. Amounts outstanding, net of original issue discount, at June 30, 2007 and 2006 were $28,967,073 and $29,609,034, respectively.

The bonds are collateralized by all accounts, general intangibles, inventory, documents, instruments, and chattel paper of the College now owned or hereafter acquired, and all proceeds thereof, but only to the extent such items constitute or result in Unrestricted Revenues of the College. The loan agreement outlined above contains various restrictive financial and other covenants typical of such agreements. By letter dated November 18, 2005, the holder of the College’s bonds payable waived a specific covenant which allowed the College to enter into the line-of-credit agreement. The waiver related exclusively to the credit line and did not waive any other restrictions related to the bonds payable agreements.

Principal payments over the next five years and thereafter are as follows:

Total interest cost on indebtedness was $1,760,453 and $1,461,629 for the years ended June 30, 2007 and 2006, respectively.

Note 12 - Lease Commitments
The College rents laptops for sophomore and freshman students under four noncancellable operating leases which expire in 2007 and 2008, respectively. The following is a schedule of future minimum lease payments for these operating leases as of June 30, 2007:

Total rent expense associated with these operating leases was $575,658 and $543,000 for 2007 and 2006, respectively.

Note 13 - Retirement Plans
Academic and certain other salaried employees of the College are participants in a retirement annuity plan sponsored by the Teachers Insurance and Annuity Association ("TIAA"). Participants contribute 5% of compensation to the plan. Additionally, the College has a retirement annuity plan for non-faculty and non-administrative employees. The College contributes 7.5% of compensation to both plans which have no employee contribution requirement. Expenses associated with the plans amounted to $1,321,461 and $908,301 in 2007 and 2006, respectively.

Note 14 - Unrestricted Net Assets
The Board of Trustees designates a portion of unrestricted net assets for quasi-endowments as well as the portion committed to property and equipment, after being reduced by related debt. A summary of these designations is as follows:

Note 15 - Temporarily Restricted Net Assets
Temporarily restricted net assets as of June 30, 2007 and 2006 are available for the following purposes or periods:

Note 16 - Permanently Restricted Net Assets
Permanently restricted net assets as of June 30, 2007 and 2006 are restricted to:

Note 17 - Net Assets Released From Restrictions
Net assets during the years ended June 30, 2007 and 2006 were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by the donors.

Note 18 - Expense Allocation
Certain expenses are allocated to operating programs and supporting activities based upon square footage. These expenses for the years ended June 30, 2007 and 2006 are as follows:

Allocation of these amounts to functional expense categories approximated 40% to instructional, 4% to academic support, 7% to student services and activities, 6% to institutional support, 3% to operation and maintenance of plant and 40% to auxiliary enterprises for both 2007 and 2006.

Note 19 – Asset Retirement Obligation
During the year ended June 30, 2007, the College implemented FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations. Under the Interpretation, an entity is required to recognize a liability for the fair value of a “conditional asset retirement obligation,” an asset retirement cost capitalized as an increase in the carrying amount of the associated long-lived asset and accumulated depreciation on the capitalized asset. The “obligation” recognized in the accompanying financial statements relates to the estimated costs to abate any remaining asbestos from the College’s facilities. The effect of initially applying the Interpretation is accounted for as a restatement of beginning net assets as of July 1, 2006. As a result, unrestricted net assets were decreased by $821,042 as of July 1, 2006 and asset retirement obligation liability was increased by $821,042.

Note 20 – Reclassification of Net Assets
Management determined, during the year ended June 30, 2007, that amounts held in third party trusts for the benefit of the College were perpetual trusts, from which income distributions will be made to the College. The contributions of these trusts had been recorded as an increase in temporarily restricted net assets in prior years. Management has reclassified the net asset balance related to these trusts to permanently restricted net assets.

Note 21 – Accounting Change
During the year ended June 30, 2007, the College implemented Statement of Financial Accounting Standards No. 158 - Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. This statement requires the employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in the statement of financial position and recognize changes in that funded status in the year in which changes occur through unrestricted net assets. The measurement date for the transition year is the beginning of the fiscal year that the measurement provisions are applied or July 1, 2006. The incremental effect of application resulted in a decrease in the accrued postretirement benefit obligation and an increase in unrestricted net assets of $2,081,631 on the Statement of Financial Position at June 30, 2007.