SACRED HEART UNIVERSITY, INC. Financial Statements. June 30, 2016 and (With Independent Auditors Report Thereon)

Transcription

1 Financial Statements (With Independent Auditors Report Thereon)

2 KPMG LLP 345 Park Avenue New York, NY Independent Auditors Report The Board of Trustees Sacred Heart University, Inc.: We have audited the accompanying financial statements of Sacred Heart University, Inc., which comprise the balance sheets as of, 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 U.S. generally accepted accounting principles; 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 auditors 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 auditors consider internal control relevant to the entity 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 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sacred Heart University, Inc. as of, and the changes in its net assets and its cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles. October 21, 2016 KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

3 Balance Sheets Assets Cash and cash equivalents $ 18,946,701 38,248,813 Accounts receivable: Students, net of allowance of $2,876,774 in 2016 and $2,579,342 in , ,139 Contributions and other, net (note 3) 17,836,253 9,029,550 Loans to students, net of allowance of $100,079 in 2016 and , ,121 Land held for sale (note 4) 2,000,000 2,000,000 Prepaid expenses 4,729, ,412 Investments (note 4) 141,489, ,097,236 Interest in split-interest agreements 155, ,674 Funds held by bond trustee (notes 4 and 5) 9,500,565 9,343,043 Other assets 3,063,724 3,171,579 Land, buildings, and equipment, net (note 6) 314,421, ,066,457 Total assets $ 513,050, ,847,024 Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 34,821,133 24,970,245 Deferred revenue 33,836,116 27,193,276 Government grants refundable student loans 340, ,230 Bonds and notes payable, net (note 7) 126,999, ,330,603 Total liabilities 195,997, ,841,354 Net assets (note 8): Unrestricted 278,882, ,013,047 Temporarily restricted 23,466,740 18,399,844 Permanently restricted 14,703,969 14,592,779 Total net assets 317,053, ,005,670 Total liabilities and net assets $ 513,050, ,847,024 See accompanying notes to financial statements. 2

4 Statements of Activities Years ended Changes in unrestricted net assets: Operating revenues: Tuition and fees $ 227,009, ,308,287 Less: University sponsored financial aid (62,845,536) (56,268,659) Externally funded financial aid (1,550,770) (1,714,390) Net tuition and fees 162,613, ,325,238 Auxiliary activities 36,432,234 34,889,566 Less University sponsored financial aid (791,632) (800,910) Net auxiliary activities 35,640,602 34,088,656 Contributions 2,126,781 1,762,128 Investment return, net (note 4) 48,109 63,752 Other, net 6,132,474 5,428,936 Net assets released from restrictions (note 9) 6,766,420 11,032,266 Total operating revenues 213,327, ,700,976 Operating expenses: Instruction 64,330,579 59,190,673 Student services 39,582,543 38,168,913 Academic support 14,857,303 13,426,509 Public service radio station 6,024,963 6,596,355 Auxiliary activities 29,673,733 30,376,978 Institutional supporting services 29,003,978 24,519,941 Total operating expenses 183,473, ,279,369 Increase in unrestricted net assets from operations 29,854,664 27,421,607 Nonoperating activities: Investment return (less than) in excess of amounts used in operations (note 4) (1,836,081) 3,367,100 Net assets released from restrictions (note 9) 2,025,974 2,160,871 Transfer of endowment (note 9) (175,099) Total nonoperation activities 14,794 5,527,971 Increase in unrestricted net assets 29,869,458 32,949,578 3 (Continued)

5 Statements of Activities Years ended Changes in temporarily restricted net assets: Contributions $ 11,806,416 11,738,294 Federal grants and contracts 2,028,576 1,962,863 State grants and contracts 344, ,162 Investment return, net (note 4) (467,429) 631,190 Net assets released from restrictions (note 9) (8,644,717) (13,193,137) Increase in temporarily restricted net assets 5,066,896 1,644,372 Changes in permanently restricted net assets: Contributions 261,401 1,534,864 Loss on interest in split-interest agreements (2,534) (285) Net assets released from restrictions (note 9) (147,677) Increase in permanently restricted net assets 111,190 1,534,579 Change in net assets 35,047,544 36,128,529 Net assets: Beginning of year 282,005, ,877,141 End of year $ 317,053, ,005,670 See accompanying notes to financial statements. 4

6 Statements of Cash Flows Years ended Cash flows from operating activities: Change in net assets $ 35,047,544 36,128,529 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 12,716,110 11,966,387 Net amortization of deferred financing (premiums)/costs (122,582) (122,581) Provision for bad debts 297,432 (282,619) Net depreciation (appreciation) in fair value of investments 5,231,538 (2,004,259) Net contributions for long-term investment and capital projects (2,285,060) (7,255,364) Change in interest in split-interest agreements 4,880 1,363 Changes in operating assets and liabilities: Student accounts receivable (113,987) 537,155 Contributions and other receivables 341,925 (1,245,753) Prepaid expenses and other assets (3,995,523) (157,610) Accounts payable and accrued liabilities, net of investing amounts (1,929,338) 405,807 Deferred revenue 6,642,840 1,113,815 Net cash provided by operating activities 51,835,779 39,084,870 Cash flows from investing activities: Additions to land, buildings, and equipment (66,071,567) (41,039,975) Short-term note related to property purchase (9,000,000) Accounts payable and accrued liabilities for construction 11,780,226 (2,732,205) Purchases of investments (63,327,274) (201,155,226) Proceeds from sales of investments 57,703, ,184,634 Student loans (issued) collections, net 13,216 30,433 Net cash used in investing activities (68,901,477) (45,712,339) Cash flows from financing activities: Proceeds from lines of credit 20,000,000 Change in funds held by bond trustee (157,522) 336,245 Principal payments from retirement of debt (3,083,333) Principal payments on bonds and notes payable (4,208,510) (5,300,365) Net contributions for long-term investment 108,656 1,534,864 Change in long-term investment and receivables capital 2,027,776 2,682,450 Government grants refundable student loans (6,814) (62,445) Net cash (used in) provided by financing activities (2,236,414) 16,107,416 Net (decrease) increase in cash and cash equivalents (19,302,112) 9,479,947 Cash and cash equivalents: Beginning of year 38,248,813 28,768,866 End of year $ 18,946,701 38,248,813 Supplemental information: Interest paid (interest expense $4,446,227 and $4,408,112, respectively) $ 4,562,914 4,440,740 See accompanying notes to financial statements. 5

7 (1) The University Sacred Heart University, Inc. (the University) is a Catholic university in New England and offers more than 40 undergraduate, graduate, and doctoral programs on its main campus in Fairfield, Connecticut, and satellites in Connecticut, Luxembourg, and Ireland. More than 6,000 students attend the University s five colleges: the College of Arts & Sciences; the Isabelle Farrington College of Education; the College of Health Professions; the College of Nursing; and the Association to Advance Collegiate Schools of Business (AACSB) accredited Jack Welch College of Business. The University is exempt from federal income taxes under Section 501(a), as an organization described in Section 501(c)(3) of the Internal Revenue Code, as amended. Accordingly, it is not subject to income taxes except to the extent it has taxable income from activities that are not related to its exempt purpose. The University recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. No provision for income taxes was required for fiscal 2016 or (2) Summary of Significant Accounting Policies (a) Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting. (b) Net Asset Classifications The University reports information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. Unrestricted net assets are not restricted by donors, or the donor-imposed restrictions have expired. The University s Board of Trustees has designated a portion of the unrestricted net assets for fixed assets and long-term investment (quasi-endowment). Temporarily restricted net assets contain donor-imposed restrictions that permit the University to use or expend the assets as specified. The restrictions are satisfied either by the passage of time or by action of the University. Permanently restricted net assets contain donor-imposed restrictions that stipulate the resources be maintained permanently, but permit the University to use the income from the resources for either specified or unspecified purposes. Revenues are reported as increases in unrestricted net assets unless their use is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets and liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. (c) Measure of Operations In the statements of activities, the University includes in operations all revenue and expenses that are an integral part of its program and supporting activities. Investment return, including net realized and unrealized gains and losses in excess of or less than the University s authorized spending policy, and other nonrecurring activities are recognized as nonoperating activities. 6 (Continued)

8 (d) (e) Cash and Cash Equivalents Cash and cash equivalents include highly liquid short-term investments with initial maturities of three months or less, with the exception of cash and cash equivalents held for long-term investment purposes. Investments Investments in debt and equity securities (including investments held by bond trustee) with readily determinable fair values are reported at fair value based upon quoted market values. The alternative investments, which are not readily marketable, are carried at an estimated fair value using net asset value as provided by the investment managers as a practical expedient. The University reviews and evaluates the value provided by the alternative investment managers. The estimated fair value may differ significantly from the value that would have been used had a ready market for the alternative investment existed. The University follows ASU No , Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Investment return (including net realized and unrealized gains or losses) is allocated between unrestricted and temporarily restricted net assets, based upon donor-imposed restrictions or the absence thereof. (f) (g) (h) Deferred Revenue The University recognizes revenue from student tuition and fees within the fiscal year in which the academic term is predominantly conducted and unearned revenue from contracts with service providers, which are recognized over the life of the contract. Amounts collected in advance of such revenue recognition are deferred. Land, Buildings, and Equipment Land, buildings, and equipment are recorded at cost on the date of acquisition or fair value on the date of donation. Depreciation is computed on a straight-line basis over the estimated useful lives of the related plant assets as follows: buildings, years; leasehold improvements, 30 years or the term of the lease; land improvements, 20 years; equipment and furniture, 3, 5, or 7 years; art, 20 years; and library books, 10 years. Contributions Contributions, including unconditional promises to give, are recognized initially at fair value as revenues in the period received. Conditional contributions are recognized as revenue when the conditions on which they depend have been substantially met. 7 (Continued)

9 The University records contributions as temporarily restricted if they are received with donor stipulations that limit their use through purpose or time restrictions. When donor-imposed restrictions expire, that is, when a purpose restriction is fulfilled or a time restriction ends, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. The fair value of contributions to be received after one year are discounted at an appropriate discount rate commensurate with the risk involved. In subsequent periods, the discount rate is unchanged and the allowance for uncollectible contributions is reassessed and adjusted as necessary. Amortization of discount is recorded as additional contributions revenue in accordance with donor-imposed restrictions, if any, on the contributions. An allowance for uncollectible contributions receivable is provided based upon management s judgment including such factors as prior collection history, type of contribution, and nature of fund-raising activity. Government grants are evaluated on an individual basis and accounted for as temporarily restricted contributions or as exchange transactions. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulation, the University reports expirations of donor-imposed restrictions when the donated or acquired long-lived assets are placed in service. The University has interests in several charitable remainder trusts and other split-interest agreements. The interests are carried at the present value of the estimated future benefit to be received when the trust assets are distributed. (i) Functional Allocation of Expenses The costs of providing University programs and supporting services have been summarized on the statements of activities. Accordingly, certain costs (depreciation, interest, and operation and maintenance of plant) have been allocated to functional categories based on building square footage or based on the use of debt proceeds. Institutional supporting services include total fund-raising costs of $2,072,021 in fiscal year 2016 and $1,893,128 in fiscal year Fund-raising activities of the University include salaries and employee benefits of program staff that develop proposals for fundraising; solicit contributions for those needs and for endowment purposes from individuals, corporations, government agencies, and foundations; and conduct specific fund-raising events. Fund-raising costs are expensed as incurred. (j) Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 8 (Continued)

10 (k) Fair Value Measurements Certain of the University s assets are reported at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three levels of inputs that may be used to measure fair value are as follows: Level 1: Quoted prices in active markets for identical assets or liabilities Level 2: 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 Level 3: Unobservable inputs that are supported by little or no market activity Alternative investments consist of shares or units in investment funds as opposed to direct interests in the funds underlying holdings, which may be marketable. (3) Contributions and Other Receivables Contributions and other receivables as of are summarized as follows: Unconditional promises expected to be collected: Within one year $ 2,518,115 3,151,065 Between one and five years 4,253,031 5,069,541 After five years 1,006,000 1,406,000 7,777,146 9,626,606 Less: Allowance for uncollectible amounts (125,186) (952,225) Discount to present value (487,246) (856,750) Net contributions receivable 7,164,714 7,817,631 Other receivables 10,671,539 1,211,919 $ 17,836,253 9,029,550 Amounts receivable from five donors represented 57% and 76% of gross contributions receivable as of, respectively. Other receivables include a $9,000,000 promissory note held in conjunction with the agreement to purchase property from The Jewish Home for the Elderly discussed in note (Continued)

11 (4) Investments and Fair Value The following tables present the University s fair value hierarchy for investments, funds held by bond trustees and land held for sale at the balance sheet date at fair value Level 1 Level 2 Level 3 Total Investments: Money market $ 12,833,788 12,833,788 Equity securities Domestic 45,097,051 45,097,051 Equity securities International 26,508,758 26,508,758 Fixed income Investment grade 23,957,259 23,957,259 Fixed income Other 13,717,997 13,717,997 Other Currency and commodities 60, , ,066 $ 122,175, , ,797,919 Alternative investments (measured at net asset value) 18,691,131 Total investments $ 141,489, Level 1 Level 2 Level 3 Total Land held for sale $ 2,000,000 2,000,000 Funds held by bond trustee: Cash and cash equivalents 9,500,565 9,500, Level 1 Level 2 Level 3 Total Investments: Money market $ 451, ,436 Equity securities Domestic 30,087,743 30,087,743 Equity securities International 19,839,323 19,839,323 Fixed income Investment grade 24,141,339 24,141,339 Fixed income Other 16,764,603 16,764,603 Other Currency and commodities 3,836,008 3,836,008 $ 95,120,452 95,120,452 Alternative investments (measured at net asset value) 45,976,784 Total investments $ 141,097, (Continued)

12 2015 Level 1 Level 2 Level 3 Total Land held for sale $ 2,000,000 2,000,000 Funds held by bond trustee: Cash and cash equivalents 9,343,043 9,343,043 Alternative investment strategies consist of: Hedge Funds and Fund of Hedge Funds ($14,302,556 and $16,431,250 at, respectively) consist of six funds representing instruments in a broad range of investments that seek attractive risk adjusted returns with low correlation to traditional asset classes. These investments have various restrictions on redemptions ranging from monthly to annually. Private Equity Funds and Fund of Funds ($4,388,575 and $4,971,455 at, respectively) consist of six funds representing limited partnerships, which were formed for the purpose of investing in private companies at various stages of development. Final distributions of two funds were in transit or held back at June 30, Under the terms of the private equity agreements, the University had open commitments of $8,123,931 at June 30, These investments are generally less liquid, and redemption of these investments is at the discretion of the general manager over the duration of the investment term Hedge Private Limited funds equity partnerships Total Redemption frequency: Monthly $ 3,005,641 3,005,641 Quarterly 3,859,736 3,859,736 Lockup 7,437,179 4,388,575 11,825,754 Total $ 14,302,556 4,388,575 18,691, (Continued)

13 Investment return was as follows for the years ended June 30: 2016 Temporarily Unrestricted restricted Total Investment earnings, net of $317,820 of expenses $ 2,587, ,726 2,976,137 Net depreciation in fair value of investments (4,375,383) (856,155) (5,231,538) Total return on investments (1,787,972) (467,429) (2,255,401) Less portion designated for operations (48,109) (48,109) Nonoperating portion $ (1,836,081) (467,429) (2,303,510) 2015 Temporarily Unrestricted restricted Total Investment earnings, net of $442,467 of expenses $ 1,740, ,667 2,057,783 Net appreciation in fair value of investments 1,690, ,523 2,004,259 Total return on investments 3,430, ,190 4,062,042 Less portion designated for operations (63,752) (63,752) Nonoperating portion $ 3,367, ,190 3,998,290 (5) Funds Held by Bond Trustee In connection with the issuance of Connecticut Housing and Education Facilities Authority (CHEFA) Revenue Bonds (note 7), the University is required to maintain certain funds with a bond trustee. Funds held by the bond trustee as of consisted of the following: Series F: Debt service reserve fund $ 636, ,364 Series G: Debt service reserve fund 5,562,095 5,538,904 Series H: Debt service reserve fund 3,301,717 3,257,775 $ 9,500,565 9,343, (Continued)

14 (6) Land, Buildings, and Equipment Land, buildings, and equipment consisted of the following at June 30: Land and land improvements $ 39,374,512 29,864,314 Buildings and leasehold improvements 302,169, ,960,540 Equipment, furniture, and other 54,892,376 52,578,786 Library books 11,923,321 11,828,733 Construction in progress 64,735,976 23,791,734 Total 473,095, ,024,107 Less accumulated depreciation (158,673,760) (145,957,650) $ 314,421, ,066,457 (7) Bonds and Notes Payable Bonds and notes payable consist of the following as of June 30: CHEFA bonds payable (a) $ 97,530, ,197,611 Notes and construction line payable (b) 29,469,482 30,132,992 $ 126,999, ,330, (Continued)

15 (a) CHEFA Bonds Payable Weighted Weighted average Principal average Principal Facility financed Maturity rate balance rate balance CHEFA Series F Residential In installments housing, renovations, and through July 1, equipment 2033 Variable $ 17,635,000 Variable $ 18,135,000 CHEFA Series G Student facilities, land, health, and In installments recreational facilities and through July 1, residential housing % 40,065, % 41,065,000 CHEFA Series H Residential In installments housing, renovations, and through July 1, equipment ,890, ,935,000 96,590, ,135,000 Plus net unamortized premium 2,562,515 2,790,632 Less unamortized bond issuance costs (1,622,486) (1,728,021) $ 97,530,029 $ 101,197,611 The CHEFA Series F, G, and H Revenue Bonds are secured by a pledge of the University s gross receipts and an open-end mortgage on and security interests in a 4-acre property at 4940 Park Avenue, Bridgeport, Connecticut, which includes Roncalli Hall, a 7-acre property at 5252 Park Avenue, Bridgeport, Connecticut, which includes Christian Witness Commons building (formerly, North Hall), and a 4-acre property located at 5401 Park Avenue, Fairfield, Connecticut, adjacent to the main campus and 4000 Park Avenue, Bridgeport, Connecticut with a covenant not to further encumber 5151 Park Avenue in Fairfield, Connecticut, except the library, and except for Permitted Encumbrances (the Negative Pledge). The University is required to maintain a debt service fund for each Series with a trustee sufficient to cover payments of principal, interest, and sinking fund requirements due on the bonds in any one year (note 5). Series F Variable Rate Demand Revenue Bonds In fiscal year 2004, the University issued CHEFA Series F Variable Rate Demand Revenue Bonds in the amount of $21,700,000. The proceeds of these bonds were used to finance construction of Christian Witness Commons (formerly, North Hall) and renovations of classroom and computer infrastructure. The variable rate bonds are secured by a Letter of Credit. Series G Revenue Bonds On June 29, 2011, the University issued CHEFA Series G Revenue Bonds in the amount of $43,905,000. The proceeds were used to finance the construction of a new student services building, 14 (Continued)

16 a new college of business building, library renovations, refunding, and defeasance of CHEFA Series C Revenue Bonds, and a repayment of $8,500,000 note payable to Bank of America. Series H Revenue Bonds On February 14, 2012, the University issued CHEFA Series H Revenue Bonds in the amount of $47,740,000 at a premium of $3.8 million. The proceeds were used for the refunding and defeasance of CHEFA Series E Revenue Bonds. These bonds are covered by a municipal bond insurance policy. (b) Notes Payable Maturity Notes payable chapel 2022 $ 9,469,482 10,132,992 Note payable construction line ,000,000 20,000,000 $ 29,469,482 30,132,992 In connection with financing for a new chapel, the University has two notes payable, each at a fixed interest rate of 3.56% and a maturity date in September At June 30, 2016, the University had three unsecured bank lines of credit totaling $4,000,000 with interest rates of LIBOR plus 0.85% to 1.5%. No amounts were outstanding at. On January 21, 2016, the University amended its June 12, 2014 loan agreement to increase its $35,000,000 line of credit to $85,000,000 at an interest rate of LIBOR plus 0.90%. The line of credit is collateralized by the University s gross receipts as well as a lien covering real property at 4000 Park Avenue in Bridgeport, CT. Total amount outstanding at was $20,000,000. The aggregate amount of principal due in respect to notes and bonds payable at June 30, 2016 is as follows: 2017 $ 4,393, ,579, ,745, ,951, ,200,702 Thereafter 82,188,433 $ 126,059,482 Pursuant to the CHEFA Bonds issued, the University met the liquidity ratio and debt service coverage ratio as of June 30, (Continued)

17 (8) Net Assets Temporarily restricted net assets: Student financial assistance $ 7,168,823 7,827,313 Capital improvements 11,140,184 2,941,861 Time restricted 1,156,978 3,574,359 Instruction 2,496,802 3,169,786 Academic support 1,503, ,525 $ 23,466,740 18,399,844 Permanently restricted net assets endowment funds for which the income is restricted for: Instruction $ 4,228,261 4,373,938 Student financial assistance 9,851,858 9,674,897 Public Service Radio Station 250, ,000 Academic support 373, ,944 $ 14,703,969 14,592,779 The University s endowment includes both donor-restricted endowment funds and funds designated by the board of trustees to function as endowment. With respect to donor-restricted endowment funds, the University 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 the donor-restricted endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University, giving consideration to the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. The duration and preservation of the fund 2. The purposes of the University and the donor-restricted endowment fund 3. General economic conditions 4. The possible effect of inflation and deflation 5. The expected total return from income and the appreciation of investments 6. Other resources of the University 7. The investment policies of the University 16 (Continued)

18 Endowment net assets consist of the following at June 30, 2016: Temporarily Permanently Unrestricted restricted restricted Total Donor-restricted $ 8,184,770 14,703,969 22,888,739 Board-designated 118,946, ,946,633 Total endowment net assets $ 118,946,633 8,184,770 14,703, ,835,372 Endowment net assets consist of the following at June 30, 2015: Temporarily Permanently Unrestricted restricted restricted Total Donor-restricted $ 9,419,797 14,592,779 24,012,576 Board-designated 118,447, ,447,984 Total endowment net assets $ 118,447,984 9,419,797 14,592, ,460,560 Changes in endowment net assets, including pledges receivable of $167,830, for the year ended June 30, 2016 are as follows: Temporarily Permanently Unrestricted restricted restricted Total Endowment at June 30, 2015 $ 118,447,984 9,419,797 14,592, ,460,560 Investment return (2,251,351) (470,461) (2,534) (2,724,346) Contributions 261, ,401 Appropriation for expenditure (764,566) (764,566) Transfer of endowment (147,677) (147,677) Transfer from board-designated funds land purchase (3,500,000) (3,500,000) Transfer to create board-designated funds 6,250,000 6,250,000 Endowment at June 30, 2016 $ 118,946,633 8,184,770 14,703, ,835, (Continued)

19 Changes in endowment net assets, including pledges receivable of $1,228,094, for the year ended June 30, 2015 are as follows: Temporarily Permanently Unrestricted restricted restricted Total Endowment at June 30, 2014 $ 114,739,419 9,486,804 13,058, ,284,423 Investment return 3,400, ,005 (285) 4,024,504 Contributions 1,534,864 1,534,864 Appropriation for expenditure (3,042,219) (691,012) (3,733,231) Transfer from board-designated funds land purchase (1,650,000) (1,650,000) Transfer to create board-designated funds 5,000,000 5,000,000 Endowment at June 30, 2015 $ 118,447,984 9,419,797 14,592, ,460,560 Return Objectives and Risk Parameters The University has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of income, while seeking to maintain the purchasing power of the endowment assets. Under this policy, as approved by the University s Finance Committee of the Board of Trustees, the endowment assets are invested in a number of different asset classes and investment strategies to diversify the investments to provide a balance that will enhance the long-term total return of the overall investment portfolio while avoiding undue risk or concentration in any single asset class or investment category. The amount available for spending is determined annually by applying a rate (4% for fiscal years 2016 and 2015) to the fair value of the permanently restricted endowment using the average market value for the past 12 quarters through the preceding December 31 provided the market value of the donor-restricted endowment exceeds the endowment contributions previously adjusted for inflation through December 31, Based on the calculation, the appropriation for expenditures was $764,566 for 2016 and $691,012 for From time to time, the University s Finance Committee of the Board of Trustees appropriates a special distribution from the funds designated by the Board of Trustees for expenditure. Such appropriations were $3,500,000 and $4,692,219 for the years ended, respectively. Funds with Deficiencies From time to time, the fair value of assets associated with an individual donor-restricted endowment fund may fall below the original value of the fund. There were no such deficiencies at June 30, 2016 or (Continued)

20 (9) Net Assets Released from Restrictions Net assets were released from donor restrictions due to the passage of time or by incurring expenses satisfying the restricted purposes specified by the donors as follows for fiscal years 2016 and 2015: Restricted for specified purposes: Student financial assistance $ 2,353,645 2,382,964 Instruction 1,762,778 1,584,976 Student services 289, ,180 Public service radio station 2,237,815 6,462,124 Institutional supporting services 10, ,817 Academic support 111, ,205 Net assets released from restrictions designated for operating activities 6,766,420 11,032,266 Released for capital 1,850,875 2,160,871 Released for transfer of endowment 175,099 Total net assets released from restrictions $ 8,792,394 13,193,137 (10) Retirement Benefits The University has a 403(b) defined contribution retirement plan for all employees. The University contributes a defined percentage of a participant s compensation for the purchase of individual annuities (8% for eligible faculty and administrators with a 5% participant contribution and 3% for eligible nonexempt employees). The cost of the plan is funded as accrued through direct payments to qualified carriers. Total contributions made during fiscal years 2016 and 2015 were $4,065,075 and $3,642,232, respectively. (11) Commitments and Contingent Liabilities Effective May 1, 1990, the University extended its lease agreement on approximately 53 acres of land, amended June 28, 2016 to include an additional 8 contiguous acres, and buildings thereon with the Diocese of Bridgeport for 90 years. In connection with the lease, the University instituted a scholarship program providing for a minimum of $180,000 in tuition benefits per academic year. Actual tuition benefits afforded under the lease agreement in fiscal years 2016 and 2015 were $430,162 and $399,097, respectively. 19 (Continued)

21 At June 30, 2016, the University s minimum annual rental commitments under noncancelable operating leases for office space, dormitories, equipment, and automobiles were as follows: 2017 $ 8,304, ,705, ,873, , ,676 Thereafter 885,193 $ 14,467,078 Total rental expense under noncancelable operating leases for fiscal years 2016 and 2015 was $10,819,482 and $10,197,825, respectively. The University has two outstanding contracts in connection with the construction of a residence hall on leased property at 5151 Park Avenue in Fairfield, Connecticut and an academic building on property owned by the University at 4000 Park Avenue in Bridgeport, Connecticut. The amount of the contracts remaining total $35,573,985 at June 30, On March 28, 2014, the University entered into an agreement with The Jewish Home for the Elderly to purchase approximately 15.6 acres of improved real property on Jefferson Street adjacent to the main campus for $16.5 million. The purchase of this property closed on August 5, There are various lawsuits and other legal proceedings against the University. Management is of the opinion that the ultimate disposition of such litigation will not have a material adverse effect on the University s financial statements. (12) Subsequent Events In connection with the preparation of the financial statements, the University evaluated subsequent events after the balance sheet date of June 30, 2016 through October 21, 2016, the date the financial statements were issued. The University has determined that there are no additional disclosures. 20