Bishop Fenwick High School Financial Statements

Transcription

1 Bishop Fenwick High School Financial Statements As of June 30, 2018 and 2017 and for the Years then Ended with Independent Auditor s Report

2 Financial Statements As of June 30, 2018 and 2017 and for the Years then Ended with Independent Auditor s Report TABLE OF CONTENTS Independent Auditor s Report...1 Financial Statements Statements of Financial Position...2 Statements of Activities...3 Statements of Cash Flows...5 Notes to the Financial Statements...6

3 Management and the Board of Limited Jurisdiction Bishop Fenwick High School Middletown, Ohio Report on the Financial Statements Independent Auditor s Report We have audited the accompanying financial statements of Bishop Fenwick High School (a nonprofit organization), which comprise the statements of financial position as of June 30, 2018 and 2017, 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 the 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 the 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 audits 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 entity s preparation and fair presentation of the financial statement 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 Bishop Fenwick High School as of June 30, 2018 and 2017, 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. Brixey & Meyer, Inc. Miamisburg, Ohio October 24, 2018 Dayton Columbus Cincinnati

4 STATEMENTS OF FINANCIAL POSITION June 30, ASSETS Current assets: Cash & cash equivalents $ 3,051,693 $ 3,693,458 Tuition receivable, net 16,958 29,002 Unconditional promises to give, current portion 68,875 62,750 Note receivable, current portion 152, ,835 Other current assets 136, ,513 Total current assets 3,425,993 4,093,558 Non-current assets: Property and equipment, net 11,458,281 11,784,731 Unconditional promises to give, less current portion 169, ,346 Note receivable, less current portion 141, ,755 Investments 3,210,028 2,208,943 Total non-current assets 14,979,264 14,488,775 Total assets $ 18,405,257 $ 18,582,333 LIABILITIES & NET ASSETS Current liabilities: Accounts payable $ 115,479 $ 94,973 Accrued expenses and other liabilities 582, ,167 Unearned revenues 2,142,941 2,190,128 Student agency accounts 90,743 93,241 Bonds payable, current portion, net of unamortized issuance costs 313, ,198 Total current liabilities 3,245,811 3,173,707 Bonds payable, less current portion, net of unamortized issuance costs 6,072,635 6,670,994 Total liabilities 9,318,446 9,844,701 Net assets: Unrestricted net assets 7,763,657 7,487,638 Temporarily restricted net assets 835, ,007 Permanently restricted net assets 487, ,987 Total net assets 9,086,811 8,737,632 Total liabilities & net assets $ 18,405,257 $ 18,582,333 See accompanying independent auditor's report and notes to the financial statements. 2

5 STATEMENTS OF ACTIVITIES YEAR ENDED JUNE 30, 2018 (WITH COMPARATIVE TOTALS FOR 2017) Unrestricted Temporarily Restricted Permanently Restricted Total 2018 Total 2017 Support and revenues: Tuition and fees, net of tuition assistance $ 4,946,183 $ - $ - $ 4,946,183 $ 4,763,174 Student services 335, , ,024 Fundraising events, net of expenses 51, ,253 68,964 State and local allocations 881, , ,169 Investment income, net of expenses 244,844 9, , ,359 Contributions 467, ,200 15, , ,335 Net assets released from restrictions 119,219 (119,219) Other 23, ,015 48,323 7,069,023 57,720 15,440 7,142,183 6,675,348 Expenditures: Program services: Instructional 2,909, ,909,761 2,661,758 Student services 964, , ,122 Support services: Facilities 586, , ,850 Depreciation 550, , ,684 General and administrative 1,096, ,096,194 1,084,699 Development 452, , ,089 Loss on disposal of property and equipment 30, ,305 - Bond interest and amortization 202, , ,972 6,793, ,793,004 6,430,174 Change in net assets 276,019 57,720 15, , ,174 Net assets - beginning of year 7,487, , ,987 8,737,632 8,492,458 Net assets - end of year $ 7,763,657 $ 835,727 $ 487,427 $ 9,086,811 $ 8,737,632 See accompanying independent auditor's report and notes to the financial statements. 3

6 STATEMENTS OF ACTIVITIES YEAR ENDED JUNE 30, 2017 Unrestricted Temporarily Restricted Permanently Restricted Total 2017 Support and revenues: Tuition and fees, net of tuition assistance $ 4,763,174 $ - $ - $ 4,763,174 Student services 295, ,024 Fundraising events, net of expenses 68, ,964 State and local allocations 657, ,169 Investment income, net of expenses 148,233 10, ,359 Contributions 403, ,496 74, ,335 Net assets released from restrictions 246,705 (246,705) - - Other 48, ,323 6,631,456 (31,083) 74,975 6,675,348 Expenditures: Program services: Instructional 2,661, ,661,758 Student services 941, ,122 Support services: Facilities 574, ,850 Depreciation 555, ,684 General and administrative 1,084, ,084,699 Development 394, ,089 Loss on extinguishment of 2003 bonds payable Bond interest and amortization 217, ,972 6,430, ,430,174 Change in net assets 201,282 (31,083) 74, ,174 Net assets - beginning of year 7,286, , ,012 8,492,458 Net assets - end of year $ 7,487,638 $ 778,007 $ 471,987 $ 8,737,632 See accompanying independent auditor's report and notes to the financial statements. 4

7 STATEMENTS OF CASH FLOWS Years ended June 30, Cash flows from operating activities: Change in net assets $ 349,179 $ 245,174 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 554, ,486 Loss on disposal of property and equipment 30,305 - Market appreciation / (depreciation) on investments 116,688 (3,058) Contributions for restricted purposes (15,440) (74,975) Effect of changes in operating assets and liabilities: Tuition receivable 12,044 (10,452) Unconditional promises to give 16,456 21,422 Other current assets (11,584) (16,387) Accounts payable 20,506 (65,398) Accrued expenses and other liabilities 91, ,667 Unearned revenues (47,187) 42,274 Student agency accounts (2,498) (33,824) Net cash provided by operating activities 1,114, ,929 Cash flows from investing activities: Proceeds from principal repayments on note receivable 193, ,249 (Purchases) sales of investments, net (1,117,773) (81,222) Purchases of property and equipment (254,690) (88,037) Net cash (used in) / provided by investing activities (1,179,433) 62,990 Cash flows from financing activities: Contributions for restricted purposes 15,440 74,975 Repayment of principal on bonds payable (587,455) (513,277) Bond issuance costs (modification) (5,000) - Net cash used in financing activities (577,015) (438,302) (Decrease) / increase in cash and cash equivalents (641,765) 400,617 Cash and cash equivalents, beginning of year 3,693,458 3,292,841 Cash and cash equivalents, end of year $ 3,051,693 $ 3,693,458 Cash paid for interest $ 201,991 $ 219,067 See accompanying independent auditor's report and notes to the financial statements. 5

8 June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Bishop Fenwick High School (the School), a nonprofit organization, operates a parochial high school located in Warren County, Ohio under the direction of the Archdiocese of Cincinnati (the Archdiocese) for students, the majority of whom live in the Butler, Warren and Montgomery County areas. Financial statements presentation The School is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, which have no donor-imposed restrictions; temporarily restricted net assets, which have donor-imposed restrictions that will expire in the future; and permanently restricted net assets, which have donor imposed restrictions which do not expire. Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted, depending on the existence and/or nature of any donor restrictions. When a restriction expires (that is, when a stipulated time restriction ends or when the purpose of the restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Contributions received with donor imposed restrictions, where the restrictions are met in the same fiscal year, are reported as unrestricted net assets. Promises to give Unconditional promises to give are recognized as revenue in the period in which the promise is received. Unconditional promises to give cash, marketable securities and other assets are reported at fair value and discounted to present value at the date the pledge is made to the extent estimated to be collectible by the School. An allowance is recorded for amounts estimated to be uncollectible by the School. Donated equipment, investments and services Donated equipment and investments are reflected as contributions in the accompanying financial statements at the estimated fair value on the date of receipt. Donated services are recognized at fair market value if the services received create or enhance long-lived assets or require specialized skills, and are provided by individuals possessing those skills and would typically need to be purchased by the School if not provided by donation. The School has recorded in-kind donations as contribution revenue and student services expense in the statements of activities for various materials and professional services rendered in the amount of $75,000 for each of the years ended June 30, 2018 and

9 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fundraising events At times during the year, the School hosts fundraising events including an annual festival, student fashion show and fish fry. Revenues from fundraising events are shown on the statements of activities, net of related fundraising expenses of $99,403 and $94,170 for the years ended June 30, 2018 and 2017, respectively. Unearned revenues Advance payments received for tuition and fees which relate to the subsequent academic year are recorded as unearned revenue and recognized as revenue in the school year to which they apply. Cash and cash equivalents For purposes of the statements of cash flows, the School considers all amounts in demand deposit accounts as cash and highly-liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. As of June 30, 2018 and 2017, $90,743 and $93,241, respectively, of the School s cash balance related to funds held for the School s student agency accounts. Student agency accounts The School acts as an agent for certain student organizations by maintaining custodial control over their funds. The use of these funds is at the discretion of the respective organizations and has no effect on the financial condition or the operating results of the School. Tuition receivable Tuition receivable accounts consist of amounts due from students for tuition and other fees. The School reserves for probable uncollectible amounts through an allowance for doubtful accounts. Once management has determined the amount to be uncollectible, the amount is fully reserved. The allowance for doubtful accounts related to tuition receivable is $100,545 at June 30, 2018 and Amounts are recorded at estimated net realizable value. Investments Investments are reported at fair value. 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. See Note 11 for discussion of fair value of investments. Basis of accounting The financial statements of the School have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables and other liabilities. 7

10 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and equipment Property and equipment are stated at cost as of the date of acquisition, or fair market value at the date of the gift, if donated. Depreciation is provided using the straight line method, when the assets are placed into service, over the following estimated useful lives: Life Building and improvements years Land improvements years Equipment, furniture and fixtures 5-20 years Use of estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) 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 reported amounts of revenue and expense during the reported period. Actual results could differ from those estimates. Concentration of credit risk The School s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, note receivable, unconditional promises to give, certain investments and receivables. Cash and cash equivalents consists primarily of cash on deposit at a financial institution. These balances are insured by the Federal Deposit Insurance Corporation up to $250,000 per financial institution. As of June 30, 2018 and 2017, the School s cash was deposited in accounts at a highly rated financial institution that management believes is creditworthy and thus considered to bear minimal credit risk. These amounts, at times, may exceed the federally insured limits. The School, The Central Offices of the Archdiocese and certain parishes and institutions within the Archdiocese participate in a pooled investment trust fund. This cash management system is administered by a bank and its trust department. The funds in the trust are exposed to various risks such as interest rate, market and credit risks. The School also deposits funds with the Archdiocese for which it receives a savings note. These deposits are exposed specifically to the credit risk of the Archdiocese. Due to the level of risk associated with the investments in the trust, as well as the deposits in the Archdiocesan savings notes, it is at least reasonably possible that changes in the value of these assets could occur and that such changes could materially affect investment income and total net assets. The School routinely assesses the financial strength of its student families, its contributors, as well as Holy Family parish with respect to its outstanding note to the School (Note 3), and, as a consequence, believes that its receivable credit risk exposure is limited. 8

11 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income taxes The School is exempt from income taxes under Section 501 of the Internal Revenue Code and a similar provision of Ohio law. However, the School is subject to federal income tax on any unrelated business taxable income. The School is not aware of any activities that would jeopardize its tax-exempt status, nor is it aware of any uncertain tax positions that result in a material impact on the statements of financial position or statements of activities of the School. Deferred bond issuance costs The School accounts for bond issuance costs in accordance with ASC 835, Interest. The School has recorded bond issuance costs related to the bonds payable as a direct deduction from the carrying amount of the recognized bond liabilities. The bond issuance costs are amortized on a straight-line basis over the remaining term of the associated bonds. The School has recorded $3,802 of amortization expense related to the bonds payable (Note 9) in the statements of activities for each of the years ended June 30, 2018 and New accounting pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) , Revenue from Contracts with Customers (Topic 606) (ASU ). The standard will apply one comprehensive revenue recognition model across all contracts, entities and sectors. The core principal of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Once effective, ASU will replace most of the existing revenue recognition requirements in U.S. GAAP. This update is effective for annual reporting periods beginning after December 15, The School is currently assessing the effect that adoption of the new standard, including possible transition alternatives, will have on its financial statements. In August 2016, FASB issued ASU , Presentation of Financial Statements for Not-for- Profit Entities (Topic 958) (ASU ). The standard will improve the current net asset classification requirements and the information presented in financial statements and notes about a not-for-profit entity s liquidity, financial performance and cash flows. The core principal of the new standard is to require that not-for-profit entities present on the face of the statement of financial position amounts for two classes of net assets rather than the currently required three classes. ASU will also provide for enhanced disclosures about amounts and purposes for designations, appropriations and other self-imposed restrictions, liquidity, the ability of a not-forprofit entity s financial assets to meet short-term cash needs and underwater endowment funds. This update is effective for annual reporting periods beginning after December 15, The School is currently assessing the effect that adoption of the new standard, including possible transition alternatives, will have on its financial statements. 9

12 2. UNCONDITIONAL PROMISES TO GIVE At June 30, 2018 and 2017, the School had received unconditional promises to give. These unconditional promises to give, stated at estimated net realizable value, consist of the following: June 30, Promises to give expected to be collected in: Less than one year $ 68,875 $ 62,750 One to five years 178, ,500 Thereafter 11,650 15,150 Total promises to give 259, ,400 Less: discounts to net present value (20,735) (19,304) Less: allowance for uncollectable promises - - Net promises to give $ 238,640 $ 255,096 Unconditional promises to give due in more than one year are discounted at a rate of 2.86% and 2.30% at June 30, 2018 and 2017, respectively. 3. NOTE RECEIVABLE In 2004, St. John the XXIII Catholic Elementary School of Middletown (Holy Family parish) purchased the former high school site for $2.65 million to be used as its grade school. At June 30, 2018 and 2017, $293,560 and $486,590, respectively, is outstanding on a note receivable related to this sale of property by the School. The note is being repaid over 17 years, with semi-annual payments of $80,000, which include interest at a rate of 2.90% per annum. The note matures in December Interest income earned on the note was $11,384 and $18,510 for the years ended June 30, 2018 and 2017, respectively, and is recorded as investment income on the statements of activities. 10

13 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following: June 30, Land $ 1,054,000 $ 1,054,000 Land improvements 2,373,929 2,341,888 Building and improvements 12,920,141 12,836,966 Equipment, furniture and fixtures 1,939,208 1,909,636 18,287,278 18,142,490 Less accumulated depreciation (6,828,997) (6,357,759) Total $ 11,458,281 $ 11,784,731 Depreciation expense was $550,835 and $555,684 for the years ended June 30, 2018 and 2017, respectively. 5. RETIREMENT PLANS The School is a member of the Lay Employees of the Archdiocese of Cincinnati retirement program. The program maintains a noncontributory defined benefit plan (the Plan). The Plan s assets, consisting of stocks, bonds, and cash, are maintained in a separate trust administered by a bank. The purpose of the trust is to pay benefits to eligible retirees. The Plan was frozen by the Archdiocese effective December 31, For the fiscal years ended June 30, 2018 and 2017, the School contributed $70,262 and $57,114, respectively, to the Plan, which represents approximately 2.5% in 2018 and 2.0% in 2017 of lay employees salaries. Effective January 1, 2011, the Archdiocese implemented a 401(k) plan for all employees who meet certain eligibility requirements. The 401(k) plan allows for employee deferral up to the maximum amount allowed by the IRS. The School makes contributions to the Plan equal to 4% of all eligible participants compensation. For the years ended June 30, 2018 and 2017, the School contributed $108,054 and $101,040, respectively, to the 401(k) plan. 6. INVESTMENTS A portion of the investments consist of savings notes with the Archdiocese that earn interest that is paid semi-annually. Additionally, the School, The Central Offices of the Archdiocese and certain parishes and institutions within the Archdiocese participate in a pooled investment trust fund. This cash management system is administered by the bank and its trust department. The remaining portion of the funds are invested in various equities and funds managed by Fifth Third Bank. 11

14 6. INVESTMENTS (CONTINUED) Investment balances and investment income are reflected in the following tables: June 30, Archdiocese of Cincinnati savings notes $ 800,286 $ 777,651 Pooled investment trust fund 1,594,959 1,431,292 Cash and cash equivalents 81,219 - U.S. equities 466,650 - Corporate and government bond mutual funds 227,432 - Real estate investment mutual funds 39,482 - Total investments $ 3,210,028 $ 2,208,943 June 30, Interest income $ 115,362 $ 107,096 Unrealized gains/(losses) 116,688 (3,058) Realized gains 11,149 35,811 Total investment income $ 243,199 $ 139, NATURE AND AMOUNT OF TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS Temporarily restricted net assets are subject to donor-imposed stipulations that may or will be met either by actions of the School satisfying the purpose or the passage of time. Temporarily restricted net assets are available for the following purposes: June 30, Scholarships & awards $ 610,152 $ 559,211 Capital improvements, campus ministry and other school related activities 225, ,796 Total $ 835,727 $ 778,007 Permanently restricted net assets, are subject to donor imposed restrictions which do not expire. Permanently restricted net assets of $487,427 and $471,987 are primarily restricted for scholarships and tuition assistance at June 30, 2018 and June 30,

15 8. ENDOWMENT FUNDS AND NET ASSETS The following is a summary of changes in endowment funds for the years ended June 30, 2018 and 2017: Temporarily Restricted Permanently Restricted Total Endowment net assets at July 1, 2016 $ 40,698 $ 397,012 $ 437,710 Investment income 10,126-10,126 Appropriation of endowment asset for expenditure (5,200) - (5,200) Additions to permanently restricted net assets - 74,975 74,975 Endowment net assets at June 30, , , ,611 Investment income 9,739-9,739 Appropriation of endowment asset for expenditure (15,250) - (15,250) Additions to permanently restricted net assets - 15,440 - Endowment net assets at June 30, 2018 $ 40,113 $ 487,427 $ 527,540 The School s endowment consists of permanently restricted individual donor endowment funds established primarily for scholarships. The School, through the Archdiocese, has interpreted the State Uniform Prudent Management of Institutional Funds Act (SPMIFA) requiring the 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 School classifies as permanently restricted net assets (a) the original value of the gifts donated to the permanent endowment, (b) the original value of the 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 in the permanently restricted net assets is classified as unrestricted or temporarily restricted in accordance with SPMIFA and donor stipulations. Absent donor stipulations, the School may appropriate for expenditure, for the uses and purposes of the endowment fund, the net appreciation, realized and unrealized, in the fair value of the assets of the endowment established by SPMIFA. From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the School to retain as a fund of perpetual duration. No deficiencies existed at June 30, 2018 and

16 8. ENDOWMENT FUNDS AND NET ASSETS (CONTINUED) The long-term objectives of the School s investment portfolio, a significant portion that is managed by the Archdiocese, is to generate a return which is sufficient to provide funding for programs supported by its endowment. To accomplish this objective, the School and the Archdiocese seek to earn the greatest total return possible consistent with its general risk tolerance and a diversified asset allocation strategy. To satisfy its long-term rate-of-return objectives, the School and the Archdiocese rely on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The School targets a diversified asset allocation that includes equity and fixed-income based investments to achieve its long-term objectives within prudent risk constraints. The School is in the process of formalizing an endowment spending policy. 9. BONDS PAYABLE The School previously had outstanding the Series 2003 Adjustable Rate Demand Development Revenue Bonds (2003 Bonds) issued by the City of Middletown, Ohio and secured by a guarantee from the Archdiocese and by a letter of credit issued by JPMorgan Chase, which was scheduled to mature on August 1, In July 2015, the School entered into an agreement with the Warren County Port Authority and Commerce Bank, as the bond trustee, to place $8,000,000 in Development Revenue Refunding Bonds (2015 Bonds). The proceeds from the 2015 Bonds, along with $1,425,000 of the School s available cash, were used to repay the $9,425,000 balance outstanding on the 2003 Bonds. The 2015 Bonds bear interest, payable quarterly, at a fixed rate of 2.90% per annum for the first 10 years and at a variable rate for the remaining 10 years. In June 2018, the School modified the interest rate to 3.09% effective September 1, The Bonds are tax exempt and are guaranteed by the Archdiocese of Cincinnati. The School s financing agreement contains certain financial and non-financial covenants. At June 30, 2018 and 2017, the net carrying amount of the 2015 Bonds is $6,386,539 and $6,975,192, which includes outstanding borrowings of $6,456,473 and $7,043,928, respectively, offset by unamortized debt issuance costs of $69,934 and $68,736, respectively. Future principal payments on the 2015 Bonds are as follows: Year ending June 30 th : 2019 $ 318, , , , ,000 Thereafter 4,771,473 $ 6,456,473 14

17 10. RELATED PARTY TRANSACTIONS The School s educational and related functions are conducted in a building titled to the Archdiocese. The School is responsible for the debt repayment, operation, maintenance and repairs of the building. The School participates in the Archdiocese s health insurance and retirement benefit programs (Note 5). Furthermore, the School has invested in savings notes with the Archdiocese and participates in the Archdiocese s pool investment trust at June 30, 2018 and 2017 (Note 6). 11. FAIR VALUE MEASUREMENTS U.S. GAAP defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques. 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. A fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach are used to measure fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1 - Observable inputs such as quoted prices in active markets for identical assets or liabilities. Level 2 Inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset and liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 Inputs are unobservable for the asset or liability and rely on management to develop its own assumptions. 15

18 11. FAIR VALUE MEASUREMENTS (CONTINUED) The following table sets forth by level, within the fair value hierarchy, the School s assets at fair value: Assets at Fair Value as of June 30, 2018: Level 1 Level 2 Level 3 Total Assets Investments: Archdiocese of Cincinnati savings notes $ - $ 800,286 $ - $ 800,286 Mutual funds - measured at asset value (a) ,594,959 U.S. equities 466, ,650 Corporate and government bond mutual 227, ,432 funds - - Cash and cash equivalents 81, ,219 Real estate investment mutual funds 39, ,482 Total assets at fair value $ 814,783 $ 800,286 $ - $ 3,210,028 (a) In accordance with Subtopic , certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items in the statement of net assets available for benefits. Assets at Fair Value as of June 30, 2017: Level 1 Level 2 Level 3 Total Assets Investments: Archdiocese of Cincinnati savings notes $ - $ 777,651 $ - $ 777,651 Mutual funds - measured at asset value (a) ,431,292 Total assets at fair value $ - $ 777,651 $ - $ 2,208,943 (a) In accordance with Subtopic , certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items in the statement of net assets available for benefits. 16

19 11. FAIR VALUE MEASUREMENTS (CONTINUED) The School s investments classified within Level 1 of the fair value hierarchy are determined using quoted prices in active markets. Those investments classified as Level 2 in the fair value hierarchy are determined based on the fair value of the underlying assets, which are valued using quoted prices in active markets or by quoted prices for similar assets in active markets. 12. STATE AND LOCAL ALLOCATIONS The School received allocations of $468,655 and $281,578 in 2018 and 2017, respectively, from the State of Ohio under Section of the Ohio Revised Code. This section provides for loaning of textbooks and for the reimbursement of expenses relating to services to students attending approved nonpublic schools. The School received allocations of $139,060 and $126,814 in 2018 and 2017, respectively, from the Warren County Career Center. This allocation is provided to the School for use in hiring and retaining teachers. These allocations are paid directly to the District Board of Education who provides all the applicable services. However, the revenue and expense associated with the allocations have been reflected in the School s financial statements. The allocations received are included in the State and Local allocations, with a corresponding amount in Student Services and Instructional expenditures on the Statements of Activities. All materials purchased remain the property of the District Board of Education on loan to the School. The School also received reimbursement from the State of Ohio for certain administrative activities as well as funding through the Title II and IDEA B programs. The gross reimbursements from these sources allowed for such expenses amounted to $273,306 and $248,777 for the years ended June 30, 2018 and 2017, respectively. These reimbursements are included in the State and Local allocations, with a corresponding amount in Student Services and Instructional expenditures on the Statements of Activities. 13. SUBSEQUENT EVENTS The School evaluates events and transactions occurring subsequent to the date of the financial statements for matters requiring recognition or disclosure in the financial statements. The accompanying financial statements consider events through October 24, 2018 which is the date on which the financial statements were available to be issued. No subsequent events have been identified by the School that impact amounts within the financial statements or that would require additional footnote disclosure. 17