Xavier University. Financial Statements as of and for the Years Ended June 30, 2016 and 2015, and Independent Auditors Report

Transcription

1 Xavier University Financial Statements as of and for the Years Ended June 30, 2016 and 2015, and Independent Auditors Report

2 INDEPENDENT AUDITORS REPORT Board of Trustees Xavier University Cincinnati, Ohio We have audited the accompanying financial statements of Xavier University (the University ), which comprise the statements of financial position as of June 30, 2016 and 2015, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

3 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Xavier University as of June 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. September 20,

4 XAVIER UNIVERSITY STATEMENTS OF FINANCIAL POSITION AS OF JUNE 30, 2016 AND 2015 (Dollars in thousands) ASSETS CASH $ 19,255 $ 18,014 SHORT-TERM INVESTMENTS 5,112 7,537 ACCOUNTS AND LOANS RECEIVABLE: Student accounts receivable less allowance for doubtful accounts of $535 in 2016 and ,408 3,938 Student loans receivable less allowance for doubtful loans of $506 in 2016 and $421 in ,818 4,206 ACCRUED INCOME RECEIVABLE 596 1,135 CONTRIBUTIONS RECEIVABLE Net (Note 5) 51,498 55,063 PREPAID EXPENSES, DEFERRED CHARGES Other assets 8,918 7,622 INVESTMENTS (Note 6) 246, ,976 CONSTRUCTION IN PROGRESS 8,106 17,750 INVESTMENT IN PLANT Net of accumulated depreciation (Note 8) 280, ,171 TOTAL $ 627,575 $ 631,412 LIABILITIES AND NET ASSETS LIABILITIES: Accounts payable and accrued expenses $ 6,574 $ 8,801 Advance payments and deposits 7,275 6,801 Accrued compensation costs 7,960 7,991 Accrued postretirement benefit costs (Note 11) 4,022 4,926 Deferred revenue 7,449 7,226 Interest rate swap 26,089 18,105 Indebtedness (Note 9) 191, ,027 Refundable advances (Note 2) 3,801 3,776 Total liabilities 255, ,653 NET ASSETS: Unrestricted 180, ,606 Temporarily restricted (Note 3) 97, ,258 Permanently restricted (Note 4) 94,084 88,895 Total net assets 372, ,759 TOTAL $ 627,575 $ 631,412 See notes to financial statements

5 XAVIER UNIVERSITY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 (Dollars in thousands) Temporarily Permanently Unrestricted Restricted Restricted Total OPERATING REVENUES: Tuition and fees $ 174,758 $ - $ - $ 174,758 Less student aid (73,312) - - (73,312) Net tuition 101, ,446 Sales and services of auxiliary enterprises 43, ,510 Less student aid (2,879) - - (2,879) Net auxiliary enterprises 40, ,631 Government grants and contracts 1, ,934 Private gifts, grants and contracts 12,628 7,232-19,860 Endowment income used in operations 203 5,294-5,497 Investment return operating 1, ,310 Other sources 7, , ,465 12, ,991 Net assets released from restriction 12,886 (12,886) - - Total operating revenues 178,351 (360) - 177,991 OPERATING EXPENSES: Instruction 62, ,127 Public service 1, ,780 Academic support 10, ,794 Student services 17, ,247 Institutional support 28, ,184 Operation and maintenance of plant 12, ,616 Auxiliary enterprises 35, ,926 Total operating expenses 168, ,674 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 9,677 (360) - 9,317 NONOPERATING ACTIVITIES: Contributions and change in contributions receivable for nonoperating purposes - (3,699) 253 (3,446) Contributions to endowment funds ,874 4,905 Investment return net of amounts used in operations (1,668) (6,135) 62 (7,741) Actuarial change in annuity liability - (175) - (175) Actuarial change in post-retirement health care benefits Net assets released from restriction and other 393 (393) - - Change in fair value of interest rate swap agreements (7,984) - - (7,984) Loss on disposal of property (54) - - (54) Increase (decrease) in net assets from nonoperating activities (8,409) (10,371) 5,189 (13,591) INCREASE (DECREASE) IN NET ASSETS 1,268 (10,731) 5,189 (4,274) NET ASSETS Beginning of year 179, ,258 88, ,759 NET ASSETS End of year $ 180,874 $ 97,527 $ 94,084 $ 372,485 See notes to financial statements

6 XAVIER UNIVERSITY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 (Dollars in thousands) Temporarily Permanently Unrestricted Restricted Restricted Total OPERATING REVENUES: Tuition and fees $ 171,871 $ - $ - $ 171,871 Less student aid (69,790) - - (69,790) Net tuition 102, ,081 Sales and services of auxiliary enterprises 42, ,842 Less student aid (2,753) - - (2,753) Net auxiliary enterprises 40, ,089 Government grants and contracts 2, ,083 Private gifts, grants and contracts 9,099 7,801-16,900 Endowment income used in operations 199 4,909-5,108 Investment return operating 1, ,291 Other sources 6, , ,425 12, ,135 Net assets released from restriction 8,622 (8,622) - - Total operating revenues 170,047 4, ,135 OPERATING EXPENSES: Instruction 60, ,445 Public service 1, ,200 Academic support 10, ,240 Student services 16, ,258 Institutional support 27, ,145 Operation and maintenance of plant 13, ,698 Auxiliary enterprises 36, ,430 Total operating expenses 165, ,416 INCREASE IN NET ASSETS FROM OPERATIONS 4,631 4,088-8,719 NONOPERATING ACTIVITIES: Contributions and change in contributions receivable for nonoperating purposes - 24,434-24,434 Contributions to endowment funds ,809 2,849 Investment return net of amounts used in operations 507 (3,537) 171 (2,859) Actuarial change in annuity liability - (650) - (650) Actuarial change in post-retirement health care benefits Net assets released from restriction and other (9,879) 9, Change in fair value of interest rate swap agreements (2,184) - - (2,184) Net asset decrease representing interest and other costs on early redemption of bonds payable (Note 9) (11,355) - - (11,355) Loss on disposal of property (61) - - (61) Increase (decrease) in net assets from nonoperating activities (22,568) 30,166 2,980 10,578 INCREASE (DECREASE) IN NET ASSETS (17,937) 34,254 2,980 19,297 NET ASSETS Beginning of year 197,543 74,004 85, ,462 NET ASSETS End of year $ 179,606 $ 108,258 $ 88,895 $ 376,759 See notes to financial statements

7 XAVIER UNIVERSITY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2016 AND 2015 (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ (4,274) $ 19,297 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 13,690 13,505 Amortization of bond premium and discount (612) 139 Loss on disposal of property and equipment Provision for losses on accounts receivable - (115) Provision for losses on student loans Provision for losses on contributions receivable (1,151) (246) Decrease in accounts receivable 530 1,514 Decrease (increase) in contributions receivable 4,716 (18,851) Decrease in accrued income receivable Increase in prepaid expenses, deferred charges and other assets (1,296) (50) Increase in accounts payable and other accrued liabilities 307 5,351 Increase (decrease) in deferred revenue 223 (523) Net asset decrease representing interest and others costs on early redemption of bonds payable - 11,355 Contributions to endowment and similar funds (3,672) (6,092) Increase in fair value of interest rate swap agreements 7,984 2,184 Change in net realized and unrealized losses on investments 6,565 2,810 Net cash provided by operating activities 23,688 31,054 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investments 185, ,820 Purchases of investments (191,353) (127,329) Purchases of property and equipment (16,146) (17,180) Student loans issued (503) (586) Student loans repaid Net cash used in investing activities (21,649) (39,566) CASH FLOWS FROM FINANCING ACTIVITIES: Contributions to endowment and similar funds 3,672 6,092 Proceeds from the issuance of debt - 126,042 Redemption of bonds payable - (125,878) Payments of bonds and notes payable (4,495) (4,105) Grants advanced Net cash (used in) provided by financing activities (798) 2,174 NET CHANGE IN CASH 1,241 (6,338) CASH Beginning of year 18,014 24,352 CASH End of year $ 19,255 $ 18,014 SUPPLEMENTAL DISCLOSURES: Property and equipment in accounts payable $ 1,141 $ 4,136 Interest paid $ 8,700 $ 8,208 See notes to financial statements

8 XAVIER UNIVERSITY NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015 (Dollars in thousands) 1. ORGANIZATION Xavier University (the University ) is a not-for-profit Jesuit educational institution located on a 190-acre campus in Cincinnati, Ohio. The University was founded in 1831 and today is a coeducational institution with more than 7,000 students in undergraduate and graduate programs. The University is a qualifying organization under Section 501(c)(3) of the Internal Revenue Code. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements of the University, which are presented on the accrual basis of accounting, have been prepared to focus on the organization as a whole and to present balances and transactions in accordance with generally accepted accounting principles. The University controls several not-for-profit entities that hold title to various parcels of land, primarily on which the University resides. The University fully funds these entities and any related property acquisitions, improvements and expenses. The University is sole controlling entity of these entities and consolidates the entities activities into the University s financial statements. Net assets, revenues, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified as follows: Unrestricted Net assets that are not subject to donor-imposed stipulations. Temporarily Restricted Net assets subject to donor-imposed stipulations that may or will be met either by actions of the University and/or the passage of time. Permanently Restricted Net assets subject to donor-imposed stipulations that they will be maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on related investments for general or specific purposes. Revenues from sources other than contributions are reported as increases in unrestricted net assets unless use of the related assets is limited by imposed restrictions. Contributions are reported as increases in the appropriate category of net assets. Expenses are reported as decreases in unrestricted net assets. Expirations of temporary restrictions recognized on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as net assets released from restriction on the statements of activities. Temporary restrictions on gifts to acquire long-lived assets are considered met in the period in which the assets are acquired or placed in service

9 Realized and unrealized gains and losses on investments are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulations or by law. The Ohio Uniform Prudent Management of Institutional Funds Act (UPMIFA) allows the Board of Trustees to appropriate a percentage of the net appreciation on endowment accounts as is prudent considering the University s present and anticipated financial requirements, expected total return on investments, price level trends and general economic conditions, unless directed by the donor s intent. The endowment spending policy is based on a spending rate established by the University s Board of Trustees. This rate represents the expected long-term return on endowment investments less an allowance for the preservation and growth of principal. Contributions, including unconditional promises to give (contributions receivable), are recognized as revenues in the period received. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value at the date of gift. Contributions to be received after one year are discounted at a rate commensurate with the risk involved. Amortization of the discount is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions based upon management s judgment and analysis of the creditworthiness of the donors, past collection experience and other relevant factors. Cash and Short-Term Investments Cash consists principally of amounts held in checking, savings and petty cash accounts in various financial institutions with an original maturity of three months or less. Short-term investments consist of commercial paper, cash equivalents held in managed trust accounts and U.S. treasuries. All short-term investments are recorded at fair value. Financial instruments that potentially subject the University to significant concentrations of credit risk consist principally of cash deposits. The University maintains cash balances at financial institutions with strong credit ratings. Generally, amounts invested with financial institutions are in excess of FDIC insurance limits. Accounts and Loans Receivable Accounts receivable consist of amounts due from students for tuition and fees. Loans receivable consist primarily of loans made to students under United States government loan programs. Accounts and loans receivable are stated at estimated net realizable value. The allowances for doubtful accounts and loans are based on expected collections on these accounts and loans. Income Taxes The University is a qualifying organization under Section 501(c)(3) of the Internal Revenue Code (the Code ) and is, therefore, exempt from federal income taxes on related income pursuant to Section 501(a) of the Code. The University is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The University believes it is no longer subject to income tax examinations for years prior to As of June 30, 2016, the University has no uncertain tax positions. Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are recorded at fair value. Other investments including real estate are recorded at cost or, if acquired by gift, at fair value at the date of gift. Fair values for certain private equity and real estate investments held through limited partnerships, hedge funds or commingled fund shares are estimated by the respective external investment managers if market values are not readily ascertainable and are considered by the University as non-marketable alternative investments. These valuations - 8 -

10 necessarily involve assumptions and estimation methods which are uncertain, and therefore the estimates could differ materially from actual results. The fair value of non-marketable alternative investments may be based on historical cost, obtainable prices for similar assets, or other estimates. The University reviews and evaluates the values provided by the investment managers and agrees with the valuation methods and assumptions used in determining the fair value of the alternative investments. Alternative investments are less liquid than the University s other investments. Investment in Plant Fixed assets are recorded at cost at the date of acquisition, or fair value at the date of donation, with the estimated useful lives as follows: Land improvements Buildings Building improvements Leasehold improvements Equipment Library collection 20 years 40 years 20 years 20 years 5 20 years 20 years Collections The University s collections of art, which were acquired through purchases and contributions since the organization s inception, are not recognized as assets on the Statements of Financial Position. Purchases of collection items are recorded as decreases in unrestricted net assets in the year in which the items are acquired or as temporarily or permanently restricted net assets if the assets used to purchase the items are restricted by donors. Contributed collection items are not reflected on the financial statements. Proceeds from deaccessions or insurance recoveries are reflected as increases in the appropriate net asset classes. Refundable Advances U.S. Government Grants Funds provided by the United States government under the Federal Perkins and Nursing Student Loan programs are loaned to qualified students and may be re-loaned after collections. These funds are ultimately refundable to the government and, therefore, recorded as a liability in the accompanying financial statements. The amount of government refundable advances at June 30, 2016 and 2015, was $3,801 and $3,776, respectively. Operations The Statement of Activities reports the change in net assets from operating and nonoperating activities. Operating revenues consist of substantially all the activities of the University except for certain items specifically considered to be of a nonoperating nature. Contributions included in nonoperating activities consist of gifts restricted for the acquisition of capital assets and gifts restricted to endowment funds. All revenue from contributions receivable that is considered to be temporarily restricted due to a time restriction or a purpose restriction is included in nonoperating activities until the time such restriction has passed or the actual cash is received. At that time the amounts are deducted from contributions and change in contributions receivable for nonoperating purposes and are included in private gifts, grants and contracts operating revenues in the Statement of Activities. Nonoperating activities also include realized and unrealized gains or losses on investments, endowment income in excess of the established spending policy and significant items of an unusual or nonrecurring nature. Liquidity Assets and liabilities are listed in their estimated order of liquidity. For those accounts for which such liquidity is unclear, additional disclosures have been made in the notes to the University s financial statements

11 Use of Estimates Management of the University has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Insurance Reserves The University is self-insured for certain losses relating to employee medical benefit claims. The University has purchased stop-loss coverage to limit specific exposure in this area. Accrued insurance liabilities are based on claims filed and estimates of claims incurred but not reported. Such amounts are determined by considering known trends and projections of future results. Actual claims experience can impact these calculations. To the extent that subsequent claims costs vary from estimates, future earnings could be impacted. Financial Instruments As of June 30, 2016 and June 30, 2015, all financial instruments held by the University were subject to enforceable master netting arrangements held by various financial institutions. In general, the terms of our agreements provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. The University s accounting policy is to offset these positions in the statements of financial position. Depending on the extent of an unrealized loss position on a derivative contract held by the University, certain counterparties may require collateral to secure the University s derivative contract position. As of June 30, 2016, the University paid collateral of $2,200 to secure the University s derivative liability positions, which is included in prepaid expenses, deferred charges-other assets in the Statement of Financial Position. As of June 30, 2015, no collateral was required to secure the University s derivative liability positions. Split Interest Agreements The University has entered into split interest agreements, including charitable remainder trusts and gift annuities which provide that the University, as trustee, make payments to designated beneficiaries in accordance with the applicable donor s trust or contractual agreement. The University is also the beneficiary of charitable trusts held by third party trustees that are accounted for as promises to give. Contributions related to split interest agreements totaled $125 for the year ended June 30, There were no contributions related to split interest agreements for the year ended June 30, At the date of contribution, the University records a split interest agreement obligation to life beneficiaries based on the present value of the estimated payments to designated life beneficiaries. The University s split interest agreement obligation fair value has been categorized based upon a fair value hierarchy in accordance with Fair Value Measurements and Disclosures, Accounting Standards Codification 820 (ASC 820). All valuations are classified as Level 2 within the fair value hierarchy based on a combination of the market and income valuation techniques. The University took into account historical and projected cash flow and net income, collectability and default rates. Specifically, the present value of estimated payments is based on actuarially determined life expectancy tables, trust asset growth assumptions, and discount rates ranging from 2.96% to 3.03%. The preceding method described produces a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, the University believes its valuation methods are appropriate and consistent with other market participants, and the use of different methodologies or assumptions to determine the fair value of similar liabilities could result in a different fair value measurement at the reporting date. The annual change in the value of the split interest agreement obligation to life beneficiaries, as reflected in the Statements of Activities, primarily represents the change in actuarial assumptions as well as the revenue and expense of the trust

12 A summary of assets held and related obligation related to split interest agreements as of June 30, 2016 and 2015 follows: Assets: Charitable remainder trusts $ 948 $ 995 Charitable gift annuities and trusts 1,640 1,785 Total $ 2,588 $ 2,780 Liabilities split interest agreement obligation $ (1,283) $ (1,263) Charitable gift annuity assets are separate and distinct funds, managed as independent accounts of the University. The University maintains reserves and a surplus of such reserves in an amount at least equal to the designated beneficiary payments on all the outstanding gift annuity contracts. These reserves shall not be applied for the payment of debts and obligations of the University or for any purpose other than payment of the annuity benefits. Reclassifications Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported increase in net assets from operations. During 2016, the University determined that it was appropriate to classify revenue and related expenses for intercollegiate athletics within sales and services of auxiliary enterprises and auxiliary enterprises operating expenses in the Statements of Activities rather than within other sources and student services operating expenses. The reasoning for the change was the University s decision to manage this area to operate as a self-supporting activity. As a result of the change, revenues of $10,196 were reclassified from other sources to sales and services of auxiliary enterprises, and expenses of $13,560 were reclassified from student services operating expenses to auxiliary enterprises operating expenses within the Statement of Activities for the year ended June 30, Gifts restricted to or designated for athletics continue to be reported with gifts. Recent Accounting Pronouncements In May 2014, the FASB issued ASU , Revenue from Contracts with Customers (Topic 606). ASU is the result of a convergence project between the FASB and International Accounting Standards Board ( IASB ) in an effort to create consistent standards in financial accounting. ASU is applicable to any entity who enters into contracts to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless they fall within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled to in exchange for these goods or services. ASU is effective for the year ending June 30, 2019 with early adoption permitted under specific circumstances. Management is in the process of evaluating the impact on the financial statements. In August 2014, the FASB issued ASU No , Presentation of Financial Statements Going Concern ( ASU ), which is included in the Codification under ASC 205, Presentation of Financial Statements ( ASC 205 ). This guidance was issued to define management s responsibility to evaluate whether there is substantial doubt about an entity s ability to continue as a going concern and to provide related footnote disclosure in

13 certain circumstances. Under the new guidance, management is required to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity s ability to continue as a going concern within one year after the date the financial statements are issued and to provide related disclosures. The guidance will be effective for interim and annual reporting periods beginning January 1, 2017, with early adoption permitted. ASU is not expected to have a material impact on the financial statements. In April 2015, the FASB issued ASU , Interest Imputation of Interest (Subtopic ): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, Early adoption is permitted for financial statements that have not been previously issued. Management is in the process of evaluating the impact on the financial statements, but it is not expected to be material. In January 2016, the FASB issued ASU , Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. The amended guidance requires entities to carry all investments in equity securities at fair value through net income unless the entity has elected the practicability exception to fair value measurement. This standard will be effective for fiscal years beginning after December 15, 2018 and will require a cumulative-effect adjustment to beginning retained earnings. Management is in the process of evaluating the impact on the financial statements. In February 2016, the FASB issued ASU , Leases (Topic 842), which represents a wholesale change to lease accounting. The standard introduces a lessee model that brings most leases on the balance sheet as well as aligning certain underlying principles of the new lessor model with those in Accounting Standards Codification ( ASC ) 606. The new standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Lessees and lessors are required to use a modified retrospective transition method for existing leases. Management is in the process of evaluating the impact on the financial statements. In August 2016, the FASB issued ASU , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. Adoption of FASB ASU will result in significant changes to financial reporting and disclosures for notfor-profit entities. FASB believes the update will improve not-for-profit entities financial statements and provide more useful information to donors, grantors, creditors, and other financial statement users. The standard is effective for annual financial statements issued for fiscal years beginning after December 15, Management is in the process of evaluating the impact on the financial statements

14 3. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets at June 30, 2016 and 2015 are available for the following purposes: Student loan funds $ 335 $ 266 Awards Capital and capital improvements 5,017 7,991 General endowments and operations 62,641 66,436 Professors and chairs 6,811 7,393 Scholarships 20,779 23,968 Charitable trusts 1,276 1,489 Total temporarily restricted net assets $ 97,527 $ 108, PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets at June 30, 2016 and 2015 are available for the following purposes: Student loan funds $ 644 $ 390 Awards Capital and capital improvements 2,774 2,874 General endowments and operations 25,931 27,276 Professors and chairs 9,600 8,038 Scholarships 54,284 49,490 Total permanently restricted net assets $ 94,084 $ 88, CONTRIBUTIONS RECEIVABLE Contributions receivable at June 30, 2016 and 2015, consist of the following: Unconditional promises expected to be collected in: Less than one year $ 11,902 $ 10,423 One year to five years 22,021 25,379 Five years and thereafter 20,364 25,052 Total 54,287 60,854 Less allowance for uncollectible contributions (767) (1,918) Discount for present value (2,022) (3,873) Total $ 51,498 $ 55,

15 Contributions receivable were discounted at 1.01% as of June 30, 2016, and 1.63% as of June 30, INVESTMENTS Investments at June 30, 2016 and 2015 are comprised of the following: Market Market Cost Value Cost Value U.S. government and agency obligations $ 6,354 $ 6,340 $ 4,905 $ 4,926 Corporate stocks and stock funds 86, ,707 88, ,521 Corporate bonds and bond funds 99, ,876 91,644 94,325 Mortgage and asset-backed securities 6,088 6,222 8,442 8,458 Real assets 13,985 12,898 12,701 12,063 Alternative investments 13,294 16,809 10,328 14,893 Real estate 1,790 1,790 1,790 1,790 $ 227,864 $ 246,642 $ 218,788 $ 244,976 Short-term investments $ 5,112 $ 5,112 $ 7,537 $ 7,537 Real assets are invested in mutual funds, commingled trusts and/or partnership structures whose underlying investments include commodities, equities, inflation-indexed fixed income securities, master limited partnerships, and real estate. Investment activity for the years ended June 30, 2016 and 2015 was: Dividend, interest, and other investment income $ 6,323 $ 6,925 Net change in realized and unrealized losses (6,565) (2,838) Outside investment management fees (570) (474) Other investment related expenses (122) (73) Total investment income, including net (losses) gains, net of fees and expenses (934) 3,540 Less: endowment income used in operations 5,497 5,108 Less: investment return operating 1,310 1,291 Investment return, net of amounts used in operations $ (7,741) $ (2,859) Investment income included in operations is comprised of endowment appropriations for donor-designated operating purposes such as student scholarships and instructional expenses as well as investment income earned on excess operating funds. Investment income included in non-operating activities primarily includes accumulated but not yet appropriated endowment earnings and investment income earned on unused funds set aside or restricted by donors for capital purposes

16 7. ENDOWMENT FUNDS The University s endowment consists of approximately 600 individual funds established for a variety of purposes, such as scholarships, endowed chairs, departmental and operating priorities and support. The endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees or University to function as endowments. As required by Generally Accepted Accounting Principles (GAAP), net assets associated with endowment funds, including funds designated by the Board of Trustees or University to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. The University classifies as permanently restricted net assets the original value of gifts donated to the permanent endowment, the original value of subsequent gifts to the permanent endowment, and accumulations to the permanent endowment made in accordance with directions of the applicable donor instrument at the time the accumulation is added to the fund. The remaining portion of the donor restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure. Endowment Net Asset Composition by Temporarily Permanently Type of Fund as of June 30, 2016 Unrestricted Restricted Restricted Total Donor-restricted $ - $ 40,841 $ 84,107 $ 124,948 Board-designated 25, ,951 Total funds $ 25,951 $ 40,841 $ 84,107 $ 150,899 Changes in Endowment Net Assets for the Year Ended June 30, 2016 Endowment net assets July 1, 2015 $ 29,003 $ 46,908 $ 80,467 $ 156,378 Contributions and other additions ,640 3,671 Total investment return (2,659) (994) - (3,653) Amounts appropriated for expenditure (393) (5,104) - (5,497) Endowment net assets June 30, 2016 $ 25,951 $ 40,841 $ 84,107 $ 150,

17 Endowment Net Asset Composition by Temporarily Permanently Type of Fund as of June 30, 2015 Unrestricted Restricted Restricted Total Donor-restricted $ - $ 46,908 $ 80,467 $ 127,375 Board-designated 29, ,003 Total funds $ 29,003 $ 46,908 $ 80,467 $ 156,378 Changes in Endowment Net Assets for the Year Ended June 30, 2015 Endowment net assets July 1, 2014 $ 28,432 $ 49,369 $ 75,676 $ 153,477 Contributions and other additions ,791 6,092 Total investment return 580 1,337-1,917 Amounts appropriated for expenditure (356) (4,752) - (5,108) Endowment net assets June 30, 2015 $ 29,003 $ 46,908 $ 80,467 $ 156,378 Permanently restricted net assets reflect the portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulations or by UPMIFA. The University has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets over time. Endowment assets include those assets of donor-restricted funds that must be held in perpetuity or for a donor-specified period(s) as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to provide for preservation of capital with an emphasis on consistent long-term growth of capital, without undue exposure to risk. The University expects its endowment funds, over time, to provide an average total rate of return that exceeds the Consumer Price Index by at least 4.5% annually. Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the University relies on a total return strategy in which investment returns are achieved through both capital appreciation and current yield. The University utilizes a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term objectives within prudent risk constraints. The University has adopted a spending policy which appropriates for distribution each year 4.25% of the average fair value of each endowment fund over the prior 12 quarters through the end of the preceding fiscal year. In establishing this policy, the University considered the long-term expected return on its endowment. Accordingly, over the long term, the University expects the current spending policy to allow its endowment to grow at an average rate exceeding the Consumer Price Index. From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires be retained as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature amounted to $1,611 as of June 30, 2016, and $305 as of June 30, These deficiencies resulted from unfavorable market fluctuations that occurred after the investment of permanently restricted contributions. The University transferred unrestricted net assets to the underwater endowments

18 8. INVESTMENT IN PLANT The components of the University s investment in plant at June 30, 2016 and 2015, are as follows: Land $ 31,383 $ 30,911 Land improvements 45,634 43,396 Buildings and building improvements 332, ,010 Leasehold improvements Equipment 28,445 26,425 Library collection , ,720 Less accumulated depreciation (158,701) (145,549) Investment in plant net $ 280,222 $ 271,171 Depreciation expense was $13,690 and $13,505 for the years ended June 30, 2016 and 2015, respectively. 9. INDEBTEDNESS The University has a $5,000 line of credit with a bank. Balances outstanding are payable on the expiration date with interest due monthly at LIBOR plus 2.0%. There are no balances outstanding on the line of credit. The line of credit at June 30, 2016 expires on December 16, The line of credit is secured by an account which must maintain a minimum balance of $5,600 and is included in investments in the Statements of Financial Position

19 Indebtedness at June 30, 2016 and 2015, consists of the following: State of Ohio Higher Educational Facility Revenue Bonds: 2015 Series C principal due annually beginning May 2016 through May 2038, interest rate ranges from 3.00% to 5.00% (includes original issue premium of $5,232) $ 54,320 $ 55, Series A principal due annually beginning May 2016 through May 2042, variable interest rate, resets monthly, 1.03% at June 30, ,575 23, Series B principal due annually beginning May 2016 through May 2042, variable interest rate, resets monthly, 1.03% at June 30, ,650 47, Series principal due annually beginning Nov 2016 through November 2030, interest rate, 2.95% 19,815 19, Series principal due annually beginning May 2013 through May 2040, interest rate ranges from 2.50% to 5.00% (net of unamortized original issue discount) 45,105 46, Series C principal due annually through May 2018, interest rate is 5.00%, $46,170 was defeased in March 2015 by 2015 Series C 3,455 5,050 Total indebtedness $ 191,920 $ 197,027 The annual maturities of indebtedness for the years ending June 30 are as follows: 2017 $ 5, , , , ,380 Thereafter 161,927 $ 191,920 The outstanding State of Ohio Higher Educational Facility Revenue Bonds ( Bonds ) are secured by a pledge of University revenues to the Bond trustee. The Pledge Agreement ( Agreement ) secures substantially all of the University s indebtedness along with the University s obligations to any credit or liquidity facility providers or counterparties to derivative agreements relating to the Bonds. All of these obligations are secured on a parity basis and the Agreement provides a mechanism for the University to secure future indebtedness also on a parity basis. The two financial covenants set forth in the various bond and indenture agreements include a coverage ratio based on expendable net assets to debt and a maximum annual debt service to revenues ratio, as defined in such agreements. As of June 30, 2016, the University was in compliance with these two financial covenants. Interest expense was approximately $8,063 for the year ended June 30, 2016 ($8,179 for the year ended June 30, 2015). Additionally, the University did not capitalize any interest for the years ended June 30, 2016 and

20 In March 2015, the University issued $70,855 and $55,187 (including a premium of $5,232) in State of Ohio Higher Educational Facility Revenue Bond 2015 Series A & B and 2015 Series C, respectively, which provided funds for the refunding of the 2008 Series A & B and for the advance refunding of the 2008 Series C. The refunding of 2008 Series A & B and issuance of 2015 Series A & B replaced variable rate demand bonds that required public weekly remarketing and a third party credit facility with variable rate direct placement bonds. The interest rate swaps associated with the bonds remained in place to offer protection against potential upward movements in interest rates. The advance refunding of the 2008 Series C and issuance of 2015 Series C replaced higher cost fixed rate public debt with lower cost fixed rate debt. The 2008 Series C debt had been issued in late 2008, and enabled Xavier to execute strategic physical campus development plans. With rates at historic lows during fiscal 2015, the higher cost 2008 Series C debt was advance refunded in favor of 2015 Series C debt at lower rates. In order to defease the 2008 Series C bonds, an amount of $8,853 was placed in a trust to be managed by a trustee as prepayment of principal and interest on the 2008 Series C, which is not callable until The remainder of the $11,355 recorded as a net asset decrease on early redemption of bonds payable is due to unamortized discount and issuance costs of $2,502 associated with the 2008 Series that were written off in connection with the early retirement of these bonds. Future cash savings of approximately $4,671 are expected due to the more favorable terms of the new 2015 Series C bonds as compared with the 2008 Series C bonds. Pursuant to ASC , the 2008 bonds are considered to be extinguished for financial reporting purposes. The University entered into in 2008 and amended in 2015 interest rate swap agreements with Barclays Capital and Deutsche Bank AG. These swap agreements have the effect of fixing the rate of interest on the Ohio Higher Educational Facility Revenue Bonds as follows: Notional University University Effective Maturity Bonds Amount Pays Receives Date Date Series 2015A $ 23, % 67% of 1 month LIBOR October 2008 May 2042 Series 2015B 47, % of 1 month LIBOR October 2008 May 2016 Series 2015B 46, % of 1 month LIBOR May 2016 May 2042 The estimated payment by the University to terminate the swap agreements was $26,089 and $18,105 as of June 30, 2016 and 2015, respectively. These amounts are reflected separately in liabilities in the statements of financial position. The change in the fair value of the interest rate swap agreements of $(7,984) and $(2,184) for the years ended June 30, 2016 and 2015, respectively, are included in nonoperating activities in the statements of activities. 10. RETIREMENT PLAN The University has a 403(b) contributory retirement plan through Teachers Insurance and Annuity Association and College Retirement Equities Fund (TIAA-CREF) that covers substantially all full-time employees after certain eligibility requirements have been met. University contributions to the plan range from 8.50% to 10.00% of eligible compensation. These contributions amounted to approximately $5,412 for the year ended June 30, 2016 ($5,188 for the year ended June 30, 2015). Plan participants are also required to make contributions to the plan ranging from 2.00% to 5.00% of their compensation. All contributions to TIAA-CREF are fully vested

21 11. POSTRETIREMENT HEALTH CARE BENEFITS In addition to the University s contributory retirement plan through TIAA-CREF, the University sponsors a defined benefit health care plan that provides post-retirement medical benefits to full-time employees who meet minimum age and service requirements. The plan is non-contributory for non-faculty employees who retired prior to December 31, 1994 and faculty that retired at the end of the academic year. For employees who met certain age and service requirements as of January 1, 1995, the plan has been amended to require employee contributions and establish a maximum monthly benefit to be provided by the University. Postretirement benefit expense includes the following components as of June 30, 2016 and 2015: Service cost of benefits earned $ - $ - Interest cost on liability Amortization of transition obligation 70 - Net periodic postretirement benefit cost $ 235 $

22 The following table summarizes the impact of the Statements of Financial Position, as well as the benefit obligations, and funded status of the postretirement benefit plan with a measurement date as of June 30, 2016 and 2015: Changes in projected benefit obligations: Benefit obligation beginning of year $ (4,926) $ (4,485) Interest cost (165) (137) Participants contributions - - Medicare Part D reimbursements - - Actuarial gain (loss) 728 (846) Benefits paid Benefit obligation end of year $ (4,022) $ (4,926) Change in fair value of plan assets: Fair value of plan assets beginning of year $ - $ - Employer contributions Participants contributions - - Medicare Part D reimbursements - - Benefits paid (341) (542) Fair value of plan assets end of year $ - $ - Reconciliation of funded status: Projected benefit obligation in excess of fair value of plan assets $ (4,022) $ (4,926) Unrecognized transition obligation - - Unrecognized actuarial loss - - Net statement of financial position liability $ (4,022) $ (4,926) The following weighted average assumptions were made in determining the postretirement benefit obligation and the postretirement benefit cost as of June 30, 2016 and 2015: Weighted average discount rate used to determine the projected benefit obligation 3.03 % 3.48 % Weighted average discount rate assumption used to determine the net periodic benefit cost

23 The health care cost trend rate assumption has a significant effect on the amounts reported in the financial statements. The following health care cost trend rates were assumed in the determination of the postretirement benefit obligation and net periodic benefit cost as of June 30, 2016 and 2015: Health care cost trend rate assumed for the current year 8.00 % 8.00 % Ultimate health care cost trend rate 4.00 % 4.00 % Year that rate reaches the ultimate trend rate Assumed medical costs trend rates have a significant effect on the amounts reported for the Plan. A one-percentage point change in the assumed health care cost trend rate would have the following effect on the postretirement benefit obligation and the net periodic benefit cost: 1% Increase 1% Decrease Effect on postretirement benefit obligation $ 320 $ (268) Effect on net periodic benefit cost 10 (8) The following benefit payments, net of participants contributions and Medicare Part D reimbursements, which reflect expected future service, as appropriate, are expected to be paid: Fiscal Years Ending June 30 Benefit 2017 $ , RELATED-PARTY TRANSACTIONS The Jesuit Community at Xavier University (the Community ), an Ohio not-for-profit corporation, is an entity separate from the University. Members of the Community serve on the University s faculty and in administration under individual employment agreements. Their related salaries are paid, in total, to the Community. In the opinion of the University s administration, such salaries are comparable to those of other employees. Members of the Community do not participate in either the University s retirement plan or the federal Social Security program. However, the University pays to the Community an amount comparable to such benefits for each Community member employed by the University. Total amounts paid to the Community are not material to the financial statements