William Jewell College

Transcription

1 Independent Auditor s Report and Consolidated Financial Statements

2 Contents Independent Auditor s Report... 1 Consolidated Financial Statements Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 6 Notes to Financial Statements... 7

3 Independent Auditor s Report Board of Trustees William Jewell College Liberty, Missouri Report on the Financial Statements We have audited the accompanying consolidated financial statements of William Jewell College (the College), which comprise the consolidated statements of financial position as of, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated 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 entity 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Board of Trustees William Jewell College Page 2 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of William Jewell College as of, 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. Emphasis of Matter As discussed in Note 13 to the consolidated financial statements, in 2016, the College elected to change its method of accounting for valuing an other investment. Our opinion is not modified with respect to this matter. Kansas City, Missouri October 21, 2016

5 Consolidated Statements of Financial Position Assets (as adjusted) Cash and cash equivalents $ 5,359,315 $ 3,999,549 Accounts receivable, net of allowance; $1,270,298, $1,122, , ,322 Prepaid expenses, inventories and other 595, ,921 Contributions receivable, net 2,810,444 1,967,622 Student loans receivable, net allowance of $143,000 for 2016 and ,139,003 3,307,225 Investments 63,351,819 69,989,924 Beneficial interests in perpetual trusts 1,118,519 1,258,034 Restricted investments held by bond trustee - 1,241,461 Property and equipment, net of accumulated depreciation; $59,192,919, $55,595,815 63,395,757 65,441,000 Total assets $ 139,941,122 $ 148,617,058 Liabilities and Net Assets Liabilities Accounts payable $ 1,064,892 $ 1,096,189 Accrued compensation and benefits 2,703,662 2,667,607 Deferred revenue 1,086,497 1,062,399 Note payable - 2,500,000 Annuities payable 1,883,334 2,036,309 Deposits held in custody 127, ,988 Asset retirement obligation 482, ,429 Refundable government loan programs 3,045,542 3,112,583 Postretirement plan obligation 5,095,448 4,317,564 Bonds payable 15,500,000 13,350,000 Total liabilities 30,989,132 31,350,068 Net Assets Unrestricted 40,670,123 47,338,000 Temporarily restricted 14,953,087 17,468,729 Permanently restricted 53,328,780 52,460,261 Total net assets 108,951, ,266,990 Total liabilities and net assets $ 139,941,122 $ 148,617,058 See 3

6 Consolidated Statement of Activities Year Ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Tuition and fees $ 33,380,372 $ - $ - $ 33,380,372 Less college funded aid (20,389,426) - - (20,389,426) Net tuition and fees 12,990, ,990,946 Private gifts, grants and bequests 1,602,606 5,057,705 1,112,993 7,773,304 Auxiliary enterprises 9,313, ,313,179 Investment loss (2,491,169) (309,723) (244,474) (3,045,366) Gain (loss) on annuity obligations (145,069) 33,279 - (111,790) Other sources 1,529, ,529,232 Net assets released from restrictions 7,296,903 (7,296,903) - - Total revenues, gains and other support 30,096,628 (2,515,642) 868,519 28,449,505 Expenses and Losses Educational and general Instruction 11,186, ,186,022 Academic support 1,636, ,636,498 Student services 7,348, ,348,272 Library 860, ,061 General institutional support 4,901, ,901,964 Fundraising 1,126, ,126,870 Total educational and general expenses 27,059, ,059,687 Auxiliary enterprises 8,409, ,409,716 Total expenses and losses 35,469, ,469,403 Change in Net Assets Before Loss on Extinguishment of Debt and Actuarial Loss on Postretirement Plan Obligation (5,372,775) (2,515,642) 868,519 (7,019,898) Loss on Extinguishment of Debt (517,218) - - (517,218) Actuarial Loss on Postretirement Plan Obligation (777,884) - - (777,884) Change in Net Assets (6,667,877) (2,515,642) 868,519 (8,315,000) Net Assets, Beginning of Year 47,338,000 17,468,729 52,460, ,266,990 Net Assets, End of Year $ 40,670,123 $ 14,953,087 $ 53,328,780 $ 108,951,990 See 4

7 Consolidated Statement of Activities Year Ended June 30, 2015 (as adjusted) Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Tuition and fees $ 32,370,425 $ - $ - $ 32,370,425 Less college funded aid (19,745,357) - - (19,745,357) Net tuition and fees 12,625, ,625,068 Private gifts, grants and bequests 1,917,424 2,219, ,109 5,074,835 Auxiliary enterprises 9,065, ,065,675 Investment income (721,416) (727,448) (63,974) (1,512,838) Gain on annuity obligations - (133,430) - (133,430) Other sources 1,457, ,457,517 Net assets released from restrictions 7,792,235 (7,792,235) - - Total revenues, gains and other support 32,136,503 (6,433,811) 874,135 26,576,827 Expenses and Losses Educational and general Instruction 10,942, ,942,272 Academic support 1,494, ,494,621 Student services 7,137, ,137,002 Library 906, ,320 General institutional support 4,331, ,331,496 Fundraising 1,110, ,110,790 Total educational and general expenses 25,922, ,922,501 Auxiliary enterprises 8,893, ,893,976 Total expenses and losses 34,816, ,816,477 Change in Net Assets Before Actuarial Loss on Postretirement Plan Obligation (2,679,974) (6,433,811) 874,135 (8,239,650) Actuarial Loss on Postretirement Plan Obligation (171,367) - - (171,367) Change in Net Assets (2,851,341) (6,433,811) 874,135 (8,411,017) Net Assets, Beginning of Year, as previously reported 48,989,341 23,902,540 51,586, ,478,007 Adjustment for Change in Accounting Principle 1,200, ,200,000 Net Assets, Beginning of Year, as adjusted 50,189,341 23,902,540 51,586, ,678,007 Net Assets, End of Year $ 47,338,000 $ 17,468,729 $ 52,460,261 $ 117,266,990 See 5

8 Consolidated Statements of Cash Flows Years Ended Operating Activities Change in net assets $ (8,315,000) $ (8,411,017) Items not requiring (providing) operating activities cash flows Depreciation, amortization and accretion 4,008,495 3,778,508 Gain on removal of asset retirement obligations (453,894) - Net realized and unrealized (gains) losses on investments 1,079,805 (764,503) Loss on market adjustment of investment in real estate 3,508,602 4,359,246 Loss on annuity obligations 111, ,430 Contributions of investment securities (66,491) (309,713) Contributions restricted for long-term investment (1,112,993) (938,109) Contributions restricted for long-lived assets (1,412,884) (886,090) Loss on extinguishment of debt 517,218 - Actuarial loss on postretirement plan obligation 777, ,367 Changes in Accounts receivable 492, ,992 Contributions receivable (52,089) 184,762 Accounts payable and accrued compensation and benefits (152,411) 253,197 Deferred revenue 24,098 (295,936) Other assets and liabilities (295,636) 54,458 Net cash used in operating activities (1,341,148) (2,288,408) Investing Activities Purchase of property and equipment (1,783,977) (1,684,105) Purchase of investments (13,916,468) (15,310,945) Proceeds from disposition of investments 17,413,633 18,443,673 Disbursements of loans to students (354,464) (394,877) Principal payments received on loans to students 522, ,164 Net cash provided by investing activities 1,881,410 1,536,910 Financing Activities Proceeds from contributions restricted for long-term investment 1,033, ,109 Proceeds from contributions restricted for long-lived assets 701, ,840 Principal payments on bonds payable (13,350,000) (395,000) Proceeds on bonds payable 15,500,000 - Payments on note payable (2,500,000) - Bond issuance costs (233,834) - Change in refundable governmental loan programs (67,041) (220,631) Payments on annuities payable (264,765) (464,443) Net cash provided by financing activities 819, ,875 Change in Cash and Cash Equivalents 1,359,766 1,377 Cash and Cash Equivalents, Beginning of Year 3,999,549 3,998,172 Cash and Cash Equivalents, End of Year $ 5,359,315 $ 3,999,549 Supplemental Cash Flows Information Interest paid $ 551,578 $ 662,452 Fixed asset purchases in accounts payable 235,228 78,059 See 6

9 Note 1: Nature of Operations and Significant Accounting Policies Nature of Operations William Jewell College (College), a not-for-profit organization founded in 1849, is a fully accredited private and independent four year liberal arts college located in Liberty, Missouri. The College s revenues and other support are derived principally from tuition, as well as from gifts, endowment earnings, campus housing and other miscellaneous campus services. The College is also the sole stockholder in an affiliated for-profit corporation, CollegeHill Investments, Inc. (CollegeHill). CollegeHill s revenues are earned primarily from the operation of Cardinal Hill Golf Course (golf course and clubhouse) and the purchase and sale of condominiums (College Place West Condominiums). The College has an operating agreement with a management company to run the operations of the golf course and clubhouse. Principles of Consolidation The consolidated financial statements include the accounts of the College and CollegeHill. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated 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, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Consortium Agreement The College participates in a consortium with other colleges and universities in Missouri to help reduce the cost of property, liability and worker s compensation insurance. The College is a member of CURMA (College and University Risk Management Association) and participates in the Property and Liability group. The College is also a member of CUTA (College and University Trust Association), which was organized as a Trust to provide worker s compensation insurance coverage for its members, which currently include sixteen Missouri colleges and universities. The College s property is insured up to $212,496,048 under CURMA, and the Consortium s exposure is limited to $100,000 for individual claims. The College uses reinsurance to reduce its exposure for large losses. Reinsurance covers claims in excess of $100,000. As a member of the consortium, the College may be subject to supplemental assessments in the event of deficiencies. As of, no liability has been recorded by the College as no consortium deficiencies have been experienced or deemed probable. 7

10 Cash and Cash Equivalents The College considers all liquid investments with original maturities of three months or less to be cash equivalents. As of, cash equivalents consisted primarily of money market accounts. Cash in excess of daily requirements is invested in interest-bearing accounts of qualified financial institutions in amounts that frequently exceed federally insured limits. The College believes the credit risk related to these deposits is minimal. Accounts and Student Loans Receivable Accounts receivable are stated at the amounts billed to students less applied scholarships and loan proceeds. The College provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Tuition is generally due at the beginning of the semester. Charges that are past due and have had no response to the due diligence process are assigned to third-party collection agencies. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the student. Student loans receivable consists of amounts due under the Federal Perkins and Nursing Student Loan Programs and institutional loan programs, and are stated at their outstanding principal amounts. Loans are made to students based on demonstrated financial need and satisfaction of federal eligibility requirements for the Federal Perkins and Nursing Student Loan Programs. Principal and interest payments on loans generally do not commence until after the borrower graduates or otherwise ceases enrollment. The College provides an allowance for doubtful notes, which is based upon a review of outstanding loans, historical collection information and existing conditions. Interest income is recorded as received, which is not materially different from the amount that would have been recognized on the accrual basis. Loans that are delinquent continue to accrue interest. Loans that are past due for at least one payment are considered delinquent. Delinquent loans are written off based on individual credit evaluation and specific circumstances of the student. Contributions and Contributions Receivable Gifts of cash and other assets received without donor stipulations are reported as unrestricted revenue and net assets. Gifts received with a donor stipulation that limits their use are reported as temporarily or permanently restricted revenue and net assets. When a donor stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. Gifts and investment income that are originally restricted by the donor and for which the restriction is met in the same time period are recorded as temporarily restricted and then released from restriction. 8

11 Gifts of land, buildings, equipment and other long-lived assets are reported as unrestricted revenue and net assets unless explicit donor stipulations specify how such assets must be used, in which case the gifts are reported as temporarily or permanently restricted revenue and net assets. Absent explicit donor stipulations for the time long-lived assets must be held, expirations of restrictions resulting in reclassification of temporarily restricted net assets as unrestricted net assets are reported when the long-lived assets are placed in service. Unconditional gifts expected to be collected within one year are reported at their net realizable value. Unconditional gifts expected to be collected in future years are initially reported at fair value determined using the discounted present value of estimated future cash flows technique. The resulting discount is amortized and is reported as contribution revenue. Conditional gifts depend on the occurrence of a specified future and uncertain event to bind the potential donor and are recognized as assets and revenue when the conditions are substantially met and the gift becomes unconditional. Investments and Investment Return Investments in equity securities having a readily determinable fair value and in all debt securities are carried at fair value. Other investments, including real estate, oil and gas interests, a FCC license and a guaranteed investment contract are valued at fair value. Investment return includes dividend, interest and other investment income; realized and unrealized gains and losses on investments carried at fair value; and realized gains and losses on other investments. Investment return on donor-restricted endowment investments assets are reported as increases or decreases in temporarily restricted net assets until appropriated by the Board of Trustees. Other investment return is reflected in the consolidated statements of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. The College maintains pooled investment accounts for its endowments. Investment income and realized and unrealized gains and losses from securities in the pooled investment accounts are allocated monthly to the individual endowments based on the relationship of the fair value of the interest of each endowment to the total fair value of the pooled investments accounts, as adjusted for additions to or deductions from those accounts. Beneficial Interests in Perpetual Trusts The College is the beneficiary under various trusts administered by an outside party. Under the terms of the trusts, the College has the irrevocable right to receive income earned on the trusts assets in perpetuity, but never receives the assets held in trust. The estimated value of the expected future cash flows is $1,118,519 and $1,258,034, which represents the fair value of the trusts assets at, respectively. 9

12 Property and Equipment Property and equipment is recorded at cost less accumulated depreciation with the exception of gifts, which are recorded at fair value at the date of donation. Depreciation is charged to expense using the straight-line method over the estimated useful life of each asset. The estimated useful lives for each major depreciable classification of property and equipment are as follows: Years Buildings and grounds Equipment and library books 3 15 The College evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds it fair value. No asset impairment was recognized during the years ended. Revenue Recognition and Deferred Revenue The College recognizes tuition revenue and related expenses over the term that the students are enrolled. Accordingly, certain revenues have been deferred at, and will be recognized as the courses are completed. Revenue from auxiliary enterprises is recognized when goods or services are provided. Annuities Payable The College has been the recipient of several gift annuities and charitable remainder trusts which require future payments to the donor or their named beneficiaries during their lifetime. Any remainder at the time of the donor s death reverts to the College. The assets received from the donor are recorded at fair value. The College has recorded a liability at of $1,883,334 and $2,036,309, respectively, which represents the present value of the future obligations. The liability has been determined using discount rates of 1.2% to 7.6%. Asset Retirement Obligations Accounting principles generally accepted in the United States of America require that an asset retirement obligation (ARO) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred or becomes determinable (as defined by the standard) even when the timing and/or method of settlement may be conditional on a future event. The College s conditional asset retirement obligations primarily relate to asbestos contained in buildings that the College owns. Environmental regulations require the College to handle and dispose of asbestos in a special manner if a building undergoes major renovations or is demolished. 10

13 The estimated liability for future asset retirement obligations was $482,641 and $914,429 at, respectively, and is included in the consolidated statements of financial position. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the College has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the College in perpetuity. Functional Allocation of Expenses The costs of supporting the various programs and other activities have been summarized on a functional basis in the consolidated statements of activities. Certain costs have been allocated among the education and general and auxiliary enterprises categories based on time expended, usage and other methods. Income Taxes The College is exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code and a similar provision of state law. However, William Jewell College is subject to federal income tax on unrelated business taxable income, which includes CollegeHill Investments, Inc. Transfers Between Fair Value Hierarchy Levels Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs) and Level 3 (significant unobservable inputs) are recognized on the period ending date. Reclassifications Certain reclassifications have been made to the 2015 financial statements to conform to the 2016 financial statement presentation. These reclassifications had no effect on the change in net assets. Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor s Report, which is the date the consolidated financial statements were available to be issued. 11

14 Note 2: Investments and Investment Return Investments at consisted of the following: Externally managed investments Money market funds $ 1,071,062 $ 2,160,590 Mutual funds Domestic 11,792,678 13,108,044 Foreign 3,809,973 4,972,220 Fixed income 758, ,789 Exchange traded funds Domestic 9,594,934 9,686,897 Foreign 1,313,050 1,425,776 Fixed income 406, ,676 Common stock Domestic 4,304,593 4,453,983 Foreign 161, ,238 U.S. Treasury securities 1,731, ,115 U.S. Agency obligations 667, ,870 Corporate bonds 7,483,876 5,864,099 Mortgage-backed securities 1,195, ,044 Asset-backed securities 1,036, ,383 Municipal bonds 1,264,859 1,118,802 Guaranteed investment contract - 1,241,461 Other 907,732 1,092,220 Internally managed investments Real estate 7,830,641 10,038,285 Oil and gas interests 6,353,000 10,314,000 FCC license 1,200,000 1,200,000 Cash surrender value of life insurance 466, ,893 Beneficial interests in perpetual trusts 1,118,519 1,258,034 $ 64,470,338 $ 72,489,419 12

15 The above investments are presented within the consolidated statements of financial position as follows: Investments $ 63,351,819 $ 69,989,924 Beneficial interests in perpetual trusts 1,118,519 1,258,034 Restricted investments held by bond trustee - 1,241,461 $ 64,470,338 $ 72,489,419 Total investment return is comprised of the following: Interest and dividends $ 900,216 $ 967,946 Royalty income 642,825 1,113,959 Net realized gains on investments at fair value 697,485 2,429,266 Net unrealized losses on investments at fair value (1,777,290) (1,664,763) Loss on investment in real estate at fair value (3,508,602) (4,359,246) Total investment return $ (3,045,366) $ (1,512,838) Note 3: Contributions Receivable Contributions receivable at consisted of the following unconditional promises to give discounted at rates ranging from 1% - 2.5%: Due within one year $ 2,390,624 $ 2,115,817 Due in one to five years 868,667 37,967 3,259,291 2,153,784 Less unamortized discount 13, Less allowance for uncollectible contributions 435, ,346 $ 2,810,444 $ 1,967,622 13

16 Note 4: Student Loans Receivable The College s student loans receivables consist of a revolving loan fund for Federal Perkins Loans and Federal Nursing Loans for which the College acts as an agent for the federal government in administering the loan program and an institutional loan fund created by the College to assist students in funding their education. The availability of funds under the Federal Loan Programs is dependent on reimbursement to the loan fund from repayments on outstanding loans. Funds advanced by the federal government totaled $2,806,045 as of. These advances are ultimately refundable to the federal government and are classified as liabilities in the consolidated statements of financial position. Outstanding loans canceled under the program result in a reduction of funds available for future loans and a decrease in the College s liability to the federal government. Total student loans receivable represented 2.3% and 2.2% of the total assets as of, respectively. Allowances for doubtful accounts are established based on current economic factors and specific circumstances of the borrower which, in management s judgment, could influence the ability of the borrower to repay the amounts per the loan terms. For the Federal Loan Programs, the federal government bears the risk of loss of uncollectible loans provided the College performs required collection due diligence procedures. The College does not stop the accrual of interest until a loan is written off; therefore, the College has no loans on nonaccrual status. Student loans receivable at, included: Student loans receivable $ 3,282,003 $ 3,450,225 Less allowance for doubtful accounts (143,000) (143,000) Net student loans receivable $ 3,139,003 $ 3,307,225 The following tables represent the amounts past due under the College s student loan programs as of : 2016 Greater Than Greater Than 240 Days, 2 Years, Less Than Less Than Less Than Greater Than Not in 240 Days 2 Years 5 Years 5 Years Classes of Loans Repayment Current Past Due Past Due Past Due Past Due Total Federal Perkins Loans $ 1,405,869 $ 1,007,800 $ 139,722 $ 68,661 $ 157,934 $ 242,362 $ 3,022,348 Federal Nursing Loans 46, ,096 27, ,590 Institutional Loans - 24, ,065 $ 1,452,419 $ 1,192,961 $ 167,666 $ 68,661 $ 157,934 $ 242,362 $ 3,282,003 As a percentage of total loan portfolio 44.3% 36.3% 5.1% 2.1% 4.8% 7.4% 100.0% 14

17 2015 Greater Than Greater Than 240 Days, 2 Years, Less Than Less Than Less Than Greater Than Not in 240 Days 2 Years 5 Years 5 Years Classes of Loans Repayment Current Past Due Past Due Past Due Past Due Total Federal Perkins Loans $ 1,563,540 $ 940,318 $ 161,523 $ 116,075 $ 142,303 $ 235,484 $ 3,159,243 Federal Nursing Loans 92, ,471 22, ,405 Institutional Loans - 28, ,577 $ 1,655,840 $ 1,116,366 $ 184,157 $ 116,075 $ 142,303 $ 235,484 $ 3,450,225 As a percentage of total loan portfolio 48.0% 32.4% 5.3% 3.4% 4.1% 6.8% 100.0% Note 5: Property and Equipment Property and equipment at consisted of: Buildings and grounds $107,523,448 $107,459,282 Equipment and library books 14,360,260 13,566,841 Construction in progress 704,968 10, ,588, ,036,815 Less accumulated depreciation and amortization 59,192,919 55,595,815 $ 63,395,757 $ 65,441,000 Note 6: Note Payable The College had a $2,500,000 note payable to a bank that matured in September The loan was collateralized by certain real estate investments of the College. Interest was payable at the prime rate, which was 3.25% at June 30, In 2016, the College utilized proceeds from a bond issuance to pay off the note in full. 15

18 Note 7: Bonds Payable Bonds payable at consisted of: Revenue Bonds, Series 2005 $ - $ 13,350,000 Revenue Bonds, Series ,500,000 - The Educational Facilities Revenue Bonds, Series 2005, were issued by the Health and Educational Facilities Authority of the State of Missouri during the year ended June 30, 2006 in the original amount of $17,880,000. These bonds were issued for the purpose of refinancing previous bond issuances and financing new construction. Principal payments were due annually through 2035 in varying amounts and interest was payable semi-annually at rates ranging from 2.75% and 4.45%. These bonds were legally defeased during the year ended June 30, 2016 in connection with the issuance of the Series 2015 bonds as discussed below. The Educational Facilities Revenue Bonds, Series 2015, were issued by the Health and Educational Facilities Authority of the State of Missouri during the year ended June 30, 2016 in the original amount of $15,500,000. These bonds were issued for the purpose of refinancing the Series 2005 bonds and note payable and funding capital projects. The bonds are collateralized by a portion of the College s core campus property. Principal payments are due annually through 2032 in varying amounts and interest is payable semi-annually at 3.33%. The bond agreement contains restrictive covenants, which, among other things, require the College to maintain certain financial covenant ratios including a historical debt service coverage ratio of not less than 1.25 and an endowment to debt ratio of not less than Failure to achieve the historical debt service coverage ratio must occur in two out of three consecutive fiscal years before the College is considered to be in default on the bonds. Although the College did not achieve a historical debt service coverage ratio of at least 1.25 as of June 30, 2016, this is the first fiscal year for the covenant calculation, therefore the bonds are not considered to be in default. Required annual principal payments on the Series 2015 bonds as of June 30, 2016 were as follows: 2017 $ 740, , , , ,000 Thereafter 11,520,000 $ 15,500,000 16

19 Note 8: Net Assets Temporarily restricted net assets at were available for the following purposes: Contributions receivable, time restricted $ 2,315,029 $ 1,045,227 Annuity obligations 640, ,382 Academic support 1,116,843 1,729,939 Physical plant 77, ,274 Fine arts 761, ,347 Student services 887, ,379 Student aid/scholarships 2,226,771 3,898,404 Library support 270, ,947 General operations 6,655,426 8,158,830 $ 14,953,087 $ 17,468,729 Permanently restricted net assets generate income that may be used for the following purposes as of : Academic support $ 22,550,431 $ 22,541,594 Physical plant 740, ,428 Fine arts 2,136,358 2,136,358 Student services 1,322,608 1,322,608 Student aid/scholarships 21,433,501 20,621,836 Library support 559, ,750 General operations 3,439,168 3,439,168 External endowments 1,145,992 1,118,519 $ 53,328,780 $ 52,460,261 17

20 Net assets released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors for the years ended were as follows: Academic support $ 1,561,221 $ 37,443 Physical plant 330,122 39,381 Fine arts 964,393 1,949,126 Student services 405, ,568 Student aid/scholarships 2,059,002 2,528,973 Library support - 38,263 General operations 1,976,989 2,549,481 $ 7,296,903 $ 7,792,235 Note 9: Endowment The College s endowment consists of approximately 500 individual funds established for a variety of purposes. The endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments (board-designated endowment funds). As required by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The College s Board of Trustees has interpreted the State of Missouri Prudent Management of Institutional Funds Act (SPMIFA) as requiring preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the College classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of donor-restricted endowment funds is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the College in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the College considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. Duration and preservation of the fund 2. Purposes of the College and the fund 3. General economic conditions 4. Possible effect of inflation and deflation 5. Expected total return from investment income and appreciation or depreciation of investments 18

21 6. Other resources of the College 7. Investment policies of the College The College has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the College must hold in perpetuity or for donorspecified periods, as well as those of board-designated endowment funds and beneficial interests in perpetual trusts held by an outside party. Under the College s policies, endowment assets held by the College are invested in a manner that is intended to produce results that exceed market average while assuming a moderate level of investment risk. The College expects its endowment funds to provide an average rate of return that allows for the endowment s spending policy, expenses and inflation. Actual returns in any given year may vary from this amount. To satisfy its long-term rate of return objectives, the College relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The College targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The College has a policy (the spending policy) of appropriating for expenditure each year, a target of 5% of its endowment fund s average fair value over the prior three years through the year-end preceding the year in which expenditure is planned. In establishing this policy, the College considered the long-term expected return on its endowment. Accordingly, over the long term, the College expects the current spending policy to allow its endowment to grow at the rate of inflation, as measured by the Consumer Price Index. This is consistent with the College s objective to maintain the purchasing power of endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return. Due to budget constraints, the Board of Trustees approved an additional 2% appropriation from the endowment for the year s ending. The composition of net assets by type of endowment fund at was: Temporarily Permanently Unrestricted Restricted Restricted Total June 30, 2016 Donor-restricted endowment funds $ (4,283,761) $ 7,812,125 $ 53,319,164 $ 56,847,528 Board-designated endowment funds 3,059, ,059,368 Total endowment funds $ (1,224,393) $ 7,812,125 $ 53,319,164 $ 59,906,896 June 30, 2015 Donor-restricted endowment funds $ (1,678,872) $ 12,845,720 $ 52,450,645 $ 63,617,493 Board-designated endowment funds 3,042, ,042,307 Total endowment funds $ 1,363,435 $ 12,845,720 $ 52,450,645 $ 66,659,800 19

22 Changes in endowment net assets for the years ended were: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, July 1, 2014 $ 3,062,777 $ 18,198,034 $ 51,576,510 $ 72,837,321 Investment return, net realized and unrealized losses (1,584,261) (727,448) (63,974) (2,375,683) Contributions , ,109 Appropriation of endowment assets for expenditure (115,081) (4,624,866) - (4,739,947) Endowment net assets, June 30, ,363,435 12,845,720 52,450,645 66,659,800 Investment return, net realized and unrealized losses (2,587,828) (309,723) (244,474) (3,142,025) Contributions - - 1,112,993 1,112,993 Appropriation of endowment assets for expenditure - (4,723,872) - (4,723,872) Endowment net assets, June 30, 2016 $ (1,224,393) $ 7,812,125 $ 53,319,164 $ 59,906,896 Amounts of donor-restricted endowment funds classified as permanently and temporarily restricted net assets at consisted of: Permanently restricted net assets - portion of perpetual endowment funds required to be permanently restricted by explicit donor stipulation or SPMIFA $ 53,319,164 $ 52,450,645 Temporarily restricted net assets - portion of perpetual endowment funds subject to a time restriction under SPMIFA With purpose restrictions $ 6,417,704 $ 11,215,604 Without purpose restrictions 1,394,421 1,630,116 $ 7,812,125 $ 12,845,720 20

23 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the College is required to retain as a fund of perpetual duration pursuant to donor stipulation or SPMIFA. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets and aggregated $4,269,197 and $1,678,872 as of June 30, 2016 and 2015, respectively. These deficiencies resulted from additional appropriations in excess of the College s spending policy. Note 10: Postretirement Benefit Plans Defined Contribution Plan The College has a defined-contribution pension plan covering substantially all employees. Employees may elect to defer a percentage of their compensation for contribution to the plan and the College will match a certain portion of such employee contributions. Contributions by the College were $550,728 and $552,384 as of, respectively. Other Postretirement Benefits The College provides medical and life insurance benefits to retirees on a cost-sharing basis, which requires the recognition of the liabilities associated with such employee postretirement benefits. The College has not set aside any assets to be used exclusively for these postretirement benefits. Benefits under the plan are paid directly by the College when due. The College uses a June 30 measurement date for the plan. Actuarial calculations were prepared based on the current employee and retiree demographics. Information about the plan s funded status follows: Benefit obligation $ (5,095,448) $ (4,317,564) Fair value of plan assets - - Funded Status $ (5,095,448) $ (4,317,564) Liability recognized in the consolidated statements of financial position: Postretirement plan obligation $ 5,095,448 $ 4,317,564 21

24 Amounts recognized in change in net assets not yet recognized as components of net periodic benefit cost consist of: Net loss $ 1,133,607 $ 1,843,993 Other significant balances and costs are: Employer contributions $ 100,923 $ 120,487 Benefits paid 100, ,487 Net periodic benefit costs 168, ,453 The change in postretirement benefit obligation during the years ended were: Balance, beginning of year $ 4,317,564 $ 4,146,197 Service cost 90,763 84,980 Interest cost 178, ,071 Actuarial (gain) loss 152,355 (230,430) Change in discount rate assumption 558,769 (88,236) Change in other economic assumptions (82,846) 78,847 Change in decrement assumptions (18,766) 281,622 Benefits paid and expenses (100,923) (120,487) Balance, end of year $ 5,095,448 $ 4,317,564 The estimated net loss that will be amortized into net periodic benefit cost over the next fiscal year is $48,

25 Significant assumptions include: Weighted-average assumption, discount rate 3.30% 4.15% Health care cost trend assumptions Initial rate 8.00% Pre-65 (Medical/RX) 7.80%/11.30% Post-65 (Medical/RX) 3.20%/10.90% Ultimate rate 5.00% Pre-65 (Medical/RX) 4.75%/5.25% Post-65 (Medical/RX) 3.20%/5.25% Time to ultimate rate 8 years 6 years Weighted average remaining service - active participants 13 years 14 years Mortality table MP-2015-GFR MP-2014-GFR Effect of one percentage point increase in trend Accumulated postretirement benefit obligation $ 669,540 $ 530,221 Postretirement benefit expense 43,675 37,464 Effect of one percentage point decrease in trend Accumulated postretirement benefit obligation (541,745) (431,426) Postretirement benefit expense (34,332) (29,904) The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as of June 30, 2016: 2017 $ 211, , , , , ,346,913 23

26 Note 11: Disclosures About Fair Value of Assets and Liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Level 2 Level 3 Quoted prices in active markets for identical assets or liabilities Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities 24

27 Recurring Measurements The following tables present the fair value measurements of assets recognized in the accompanying consolidated statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2016 and 2015: 2016 Fair Value Measurements Using Fair Value Level 1 Level 2 Level 3 Money market funds $ 1,071,062 $ 1,071,062 Mutual funds Domestic 11,792,678 11,792,678 Foreign 3,809,973 3,809,973 Fixed income 758, ,938 Exchange-traded funds Domestic 9,594,934 9,594,934 Foreign 1,313,050 1,313,050 Fixed income 406, ,080 Common stock Domestic 4,304,593 4,304,593 Foreign 161, ,952 U.S. Treasury securities 1,731,863 1,731,863 U.S. Agency obligations 667,981 $ 667,981 Corporate bonds 7,483,876 7,483,876 Mortgage-backed securities 1,195,292 1,195,292 Asset-backed securities 1,036,657 1,036,657 Municipal bonds 1,264,859 1,264,859 Other 907, ,732 Real estate 7,830,641 $ 7,830,641 Oil and gas interests 6,353,000 6,353,000 FCC license 1,200,000 1,200,000 Cash surrender value of life insurance 466, ,658 Beneficial interests in perpetual trusts 1,118,519 1,118,519 $ 64,470,338 $ 34,945,123 $ 12,556,397 $ 16,968,818 25

28 2015 Fair Value Measurements Using Fair Value Level 1 Level 2 Level 3 Money market funds $ 2,160,590 $ 2,160,590 Mutual funds Domestic 13,108,044 13,108,044 Foreign 4,972,220 4,972,220 Fixed income 784, ,789 Exchange-traded funds Domestic 9,686,897 9,686,897 Foreign 1,425,776 1,425,776 Fixed income 496, ,676 Common stock Domestic 4,453,983 4,453,983 Foreign 154, ,238 U.S. Treasury securities 770, ,115 U.S. Agency obligations 511,870 $ 511,870 Corporate bonds 5,864,099 5,864,099 Mortgage-backed securities 567, ,044 Asset-backed securities 837, ,383 Municipal bonds 1,118,802 1,118,802 Guaranteed investment contract 1,241,461 1,241,461 Other 1,092,220 1,092,220 Real estate 10,038,285 $ 10,038,285 Oil and gas interests 10,314,000 10,314,000 FCC license 1,200,000 1,200,000 Cash surrender value of life insurance 432, ,893 Beneficial interests in perpetual trusts 1,258,034 1,258,034 $ 72,489,419 $ 38,013,328 $ 11,232,879 $ 23,243,212 Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated statements of financial position, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. 26

29 Investments Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. See the table below for inputs and valuation techniques used for Level 3 securities. Real Estate Real estate is valued by third-party appraisers and/or brokers who have been deemed reliable specialists by the College. The College utilizes a rotating appraisal/evaluation method in which each property will be valued once every three years, at a minimum. Discounts are taken if the economic climate indicates such should be considered. Due to the nature of the valuation inputs, the interests are classified within Level 3 of the hierarchy. Oil and Gas Interests The fair value of oil and gas interests is estimated by a third-party using a combination of expected future cash flows and comparable sales data obtained from a national energy auction site. Due to the nature of the valuation inputs, the interests are classified within Level 3 of the hierarchy. FCC License The fair value of the FCC license is estimated by a third-party who has been deemed a reliable specialist by the College. The value was determined using the discounted cash flow method which is based on an expectancy of the radio station to generate future revenue and cash flow during an assumed investment period. The cash flow generated during the investment period, discounted to present value, is added to the present value of the estimated residual for the station derived from the sale of the station at the end of the investment period. Due to the nature of the valuation inputs, the FCC license is classified within Level 3 of the hierarchy. Beneficial Interest in Perpetual Trusts Fair value is estimated at the present value of the future distributions expected to be received over the term of the agreement which is equivalent to the fair value of the trust assets. Beneficial interests in which the College will never have the ability to redeem the trust assets are categorized as Level 3. 27

30 Level 3 Valuation Process Fair value determinations for Level 3 measurements of securities are the responsibility of management. Management contracts with pricing specialists to generate fair value estimates on an annual basis. Management challenges the reasonableness of the assumptions used and reviews the methodology to ensure the estimated fair value complies with accounting standards generally accepted in the United States of America. Level 3 Reconciliation The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated statements of financial position using significant unobservable (Level 3) inputs: Cash Beneficial Surrender Interests in Oil and Gas FCC Value of Life Perpetual Real Estate Interests License Insurance Trusts July 1, 2014 Balance $ 9,432,638 $ 15,574,000 $ 1,200,000 $ 406,890 $ 1,322,008 Net realized losses (72,475) Unrealized appreciation (depreciation) 973,228 (5,260,000) - 26,003 (63,974) Sales, settlements (295,106) June 30, 2015 Balance 10,038,285 10,314,000 1,200, ,893 1,258,034 Net realized gains 120, Unrealized appreciation (depreciation) 332,059 (3,961,000) - 33,765 (139,515) Purchases, issuances 250, Sales, settlements (2,910,639) June 30, 2016 Balance $ 7,830,641 $ 6,353,000 $ 1,200,000 $ 466,658 $ 1,118,519 Total gains or losses included in change in net assets attributable to the change in unrealized gains or losses relating to financial instruments still held at the reporting date June 30, 2016 $ 332,059 $ (3,961,000) $ - $ 33,765 $ (139,515) June 30, 2015 $ 973,228 $ (5,260,000) $ - $ 26,003 $ (63,974) 28