FINANCIAL STATEMENTS JUNE 30, 2016
Contents Page Independent Auditors Report... 1-3 Financial Statements Statement Of Financial Position... 4 Statements Of Activities... 5-6 Statement Of Cash Flows... 7-8 Notes To Financial Statements... 9-33
RubinBrown LLP Certified Public Accountants & Business Consultants Board of Trustees Rockhurst University Kansas City, Missouri Independent Auditors Report 10975 Grandview Drive Suite 600 Overland Park, KS 66210 T 913.491.4144 F 913.491.6821 W rubinbrown.com E info@rubinbrown.com Report On The Financial Statements We have audited the accompanying financial statements of Rockhurst University (the University), which comprise the statement of financial position as of June 30, 2016, and the related statements of activities and cash flows for the year 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 the 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. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 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 auditor considers internal control relevant to the University s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
Board of Trustees Rockhurst University 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 Rockhurst University as of June 30, 2016, and the results of its operations and its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Emphasis Of Matter As discussed in Note 1 to the financial statements, the 2015 financial statements have been restated to correct a misstatement. Our opinion is not modified with respect to that matter. Other Matter The financial statements of the University for the year ended June 30, 2015, before the restatement described in Note 1, were audited by other auditors whose report dated November 4, 2015, expressed an unmodified opinion on those statements. As part of our audit of the June 30, 2016 financial statements, we also audited the adjustment described in Note 1 that was applied to restate the June 30, 2015 financial statements. In our opinion, this adjustment is appropriate and has been properly applied. We were not engaged to audit, review, or apply any procedures to the 2015 financial statements of the University other than with respect to the adjustment and, accordingly, we do not express an opinion or any other form of assurance on the 2015 financial statements as a whole. Page 2
Board of Trustees Rockhurst University Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Other Reporting Required By Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 28, 2016, on our consideration of the University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University s internal control over financial reporting and compliance. December 28, 2016 Page 3
STATEMENT OF FINANCIAL POSITION Assets June 30, 2015 2016 (As Restated) Cash and cash equivalents $ 827,186 $ 145,222 Accounts receivable, net of allowance; 2016 and 2015 - $200,000 1,578,685 912,893 Investments 32,783,914 35,247,510 Contributions receivable, net of allowance; 2016 and 2015 - $100,000 2,060,043 2,753,756 Notes receivable, net of allowance; 2016 and 2015 - $11,200 2,267,525 2,359,543 Note receivable from sale of RUCEC 2,700,000 Property and equipment, net 89,591,578 89,837,936 Restricted cash and cash equivalents 1,734,257 2,420,506 Other 1,921,628 1,856,939 Total Assets $ 132,764,816 $ 138,234,305 Liabilities And Net Assets Liabilities Line of credit $ 8,727,201 $ 6,388,639 Accounts payable 1,637,930 4,592,142 Accrued expenses 2,398,337 2,333,492 Deferred revenue 4,290,800 4,920,934 Deposits held for others 301,084 257,441 Notes and bonds payable 39,308,119 40,396,130 Annuities payable 7,229 8,959 Interest swap agreements 3,847,069 3,441,636 Asset retirement obligation 776,610 744,147 Federal contributions to loan program 1,730,812 1,717,813 Total Liabilities 63,025,191 64,801,333 Net Assets Unrestricted 27,095,557 28,326,875 Temporarily restricted 8,033,092 11,424,868 Permanently restricted 34,610,976 33,681,229 Total Net Assets 69,739,625 73,432,972 Total Liabilities And Net Assets $ 132,764,816 $ 138,234,305 See the accompanying notes to financial statements. Page 4
STATEMENT OF ACTIVITIES For The Year Ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Gains (Losses) And Other Support Student tuition and fees $ 64,457,376 $ $ $ 64,457,376 Less: Institutional financial aid 29,742,401 29,742,401 Net tuition and fees 34,714,975 34,714,975 Grants and contracts 584,633 584,633 Investment return (645,497) 240,409 (16,118) (421,206) Private gifts, net 1,275,364 1,555,659 945,865 3,776,888 Auxiliary enterprises 7,732,434 7,732,434 Other 1,890,886 358 1,891,244 Net assets released from restriction 5,188,202 (5,188,202) Total Operating Revenues, Gains (Losses) And Other Support 50,740,997 (3,391,776) 929,747 48,278,968 Expenses Instructional 17,470,401 17,470,401 Institutional support 10,306,032 10,306,032 Sponsored programs 427,778 427,778 Student aid 2,559,059 2,559,059 Academic support 6,022,724 6,022,724 Student services 5,600,739 5,600,739 Auxiliary enterprises 8,834,177 8,834,177 Total Expenses 51,220,910 51,220,910 Changes In Net Assets Before Unrealized Loss On Interest Rate Swap Agreements And Other Losses (479,913) (3,391,776) 929,747 (2,941,942) Loss On Disposal Of Property And Equipment (32,671) (32,671) Loss On Termination Of Interest Rate Swap (313,000) (313,000) Unrealized Loss On Interest Rate Swap Agreements (405,734) (405,734) Change In Net Assets (1,231,318) (3,391,776) 929,747 (3,693,347) Net Assets - Beginning Of Year 28,326,875 11,424,868 33,681,229 73,432,972 Net Assets - End Of Year $ 27,095,557 $ 8,033,092 $ 34,610,976 $ 69,739,625 See the accompanying notes to financial statements. Page 5
STATEMENT OF ACTIVITIES For The Year Ended June 30, 2015 (As Restated) Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Gains (Losses) And Other Support Student tuition and fees $ 63,692,578 $ $ $ 63,692,578 Less: Institutional financial aid 31,003,462 31,003,462 Net tuition and fees 32,689,116 32,689,116 Grants and contracts 537,619 537,619 Investment return 358,007 (405,782) 17,506 (30,269) Private gifts, net 1,624,895 2,663,529 1,611,340 5,899,764 Auxiliary enterprises 8,236,009 8,236,009 Other 1,878,562 1,878,562 Net assets released from restriction 8,311,674 (8,311,674) Total Operating Revenues, Gains (Losses) And Other Support 53,635,882 (6,053,927) 1,628,846 49,210,801 Expenses Instructional 16,309,265 16,309,265 Institutional support 10,492,868 10,492,868 Sponsored programs 404,603 404,603 Student aid 1,873,401 1,873,401 Academic support 5,837,029 5,837,029 Student services 5,598,883 5,598,883 Auxiliary enterprises 8,823,582 8,823,582 Total Expenses 49,339,631 49,339,631 Changes In Net Assets From Continuing Operations 4,296,251 (6,053,927) 1,628,846 (128,830) Discontinued Operations Change in net assets from discontinued operations (Including gain on sale of RUCEC of $8,849,843 during 2015) 7,942,946 7,942,946 Impairment Of Real Estate Held For Investment (591,032) (591,032) Gain On Disposal Of Property And Equipment 91,486 91,486 Unrealized Gain On Interest Rate Swap Agreements 92,086 92,086 Change In Net Assets 11,831,737 (6,053,927) 1,628,846 7,406,656 Net Assets - Beginning Of Year, As Previously Reported 17,105,871 17,478,795 32,052,383 66,637,049 Cumulative Effect Of Error (610,733) (610,733) Net Assets - Beginning Of Year, As Restated 16,495,138 17,478,795 32,052,383 66,026,316 Net Assets - End Of Year $ 28,326,875 $ 11,424,868 $ 33,681,229 $ 73,432,972 See the accompanying notes to financial statements. Page 6
STATEMENT OF CASH FLOWS Page 1 Of 2 For The Years Ended June 30, 2015 2016 (As Restated) Cash Flows From Operating Activities Change in net assets $ (3,693,347) $ 7,406,656 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization 3,747,909 2,972,191 Net realized and unrealized losses on investments 1,436,819 1,036,221 Loss (gain) on disposal of property and equipment 32,671 (91,486) Change in contributions receivable discount 34,625 (76,056) Change in fair value of interest swap agreements 405,433 (92,086) Gain on sale of RUCEC (8,849,843) Contributions received restricted for long-term investment or acquisition of long-lived assets (1,020,649) (2,394,035) Impairment of real estate held for investment 591,032 Changes in: Accounts receivable (665,792) 271,848 Inventories 30,177 Prepaid expenses (64,689) 1,042,198 Contributions receivable 595,447 (431,347) Accounts payable and accrued expenses (5,525,467) 1,527,619 Deferred revenue (630,134) 1,214,528 Deposits held for others 43,643 6,248 Annuities payable (1,730) (4,133) Other liabilities 45,462 (2,553,432) Net Cash Provided By (Used In) Operating Activities (5,259,799) 1,606,300 Cash Flows From Investing Activities Purchase of property and equipment (898,122) (18,919,510) Proceeds from disposal of property and equipment 197,957 Purchase of investments (5,034,765) (13,921,075) Proceeds from disposition of investments 6,125,183 21,939,835 Advances made on notes receivable (313,639) Principal payments received on notes receivable 92,018 355,147 Repayments on note receivable from sale of RUCEC 2,700,000 2,354,523 Restricted cash and cash equivalents 686,249 210,033 Net Cash Provided By (Used In) Investing Activities 3,670,563 (8,096,729) See the accompanying notes to financial statements. Page 7
STATEMENT OF CASH FLOWS Page 2 Of 2 For The Years Ended June 30, 2015 2016 (As Restated) Cash Flows From Financing Activities Outstanding checks in excess of bank balances $ $ (197,380) Proceeds from contributions and pledges restricted for long-term investment or acquisition of long-lived assets 1,020,649 6,032,622 Borrowings on line of credit (27,808,955) (21,482,494) Repayments on line of credit 30,147,517 20,871,133 Redemption of bonds payable (18,885,001) Proceeds from issuance of notes and bonds payable 19,430,000 192,670 Principal payments on notes and bonds payable (1,633,010) (1,459,981) Net Cash Provided By Financing Activities 2,271,200 3,956,570 Net Increase (Decrease) In Cash And Cash Equivalents 681,964 (2,533,859) Cash And Cash Equivalents - Beginning Of Year 145,222 2,679,081 Cash And Cash Equivalents - End Of Year $ 827,186 $ 145,222 Supplemental Cash Flow Information Interest paid $ 2,520,475 $ 2,545,393 Note receivable from sale of RUCEC 2,700,000 Retainage payable on construction in progress 96,108 169,826 Accounts payable incurred for property and equipment purchases 242,403 2,878,504 See the accompanying notes to financial statements. Page 8
NOTES TO FINANCIAL STATEMENTS June 30, 2016 And 2015 1. Nature Of Operations And Summary Of Significant Accounting Policies Nature Of Operations Rockhurst University (the University ) is a private, Catholic, Jesuit comprehensive university, which offers baccalaureate and master s degrees in arts and sciences, education and business in a co-educational environment. Major funding sources include student tuition and fees, private gifts and grants, government grants and contracts and endowment income. Rockhurst University also participates in the Federal Pell Grant, Teacher Education Assistance for College and Higher Education Grant, Federal Work Study, Federal Supplemental Educational Opportunity Grant, Federal Perkins Loan and Federal Direct Loan programs. Operating And Nonoperating Activities Operating activities include the general activities of the University including the delivery of education programs and the requisite support functions. Nonoperating activities include unrealized gains and losses on interest rate swap agreements, gains and losses on disposals of property and equipment, impairment losses of real estate held for investment and gains from discontinued operations. Use Of Estimates The preparation of 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 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. Cash Equivalents And Restricted Cash And Cash Equivalents The University considers all liquid investments with original maturities of three months or less to be cash equivalents. At June 30, 2016 and 2015, cash equivalents consisted primarily of money market accounts with brokers and certificates of deposit. At June 30, 2016, the University s cash accounts exceeded federally insured limits by approximately $468,000. Page 9
Investments And Investment Return Investments in equity securities having a readily determinable fair value and all debt securities are carried at fair value. Other investments are valued at the lower of cost (or fair value at time of donation, if acquired by contribution) or 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 that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other investment return is reflected in the statements of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. The University maintains pooled investment accounts for its endowments. Investment return from securities in the pooled investment accounts is 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 investment accounts, as adjusted for additions to or deductions from those accounts. Accounts Receivable Student accounts receivable are stated at the amounts billed to students less any applied scholarships and loan proceeds. The University provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. University tuition is generally due at the beginning of the semester. University charges that are past due and have had no response to the due diligence process and are assigned to third-party collection agencies are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the student. Bond Issue Costs Costs incurred in connection with the issuance of bonds are capitalized and amortized using the effective-interest method over the term of the bonds. In connection with the bond refinancing transaction described in Note 7, the University capitalized approximately $262,000 of bond issue costs related to the 2015 bond issue in 2016. Also, approximately $151,000 of previously capitalized bond issue costs were expensed and allocated to the various functions in the accompanying 2016 statement of activities. Page 10
Property And Equipment Property and equipment are depreciated on a straight-line basis over the estimated useful life of each asset. Leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives. The University does not calculate capitalized interest for property and equipment acquired with gifts that are restricted by the donor to acquisition of those assets. The estimated useful lives for each major depreciable classification of property and equipment are as follows: Buildings Leasehold improvements Equipment, furniture and fixtures Motor vehicles 50-100 years 15 years 3-30 years 5 years Long-Lived Asset Impairment The University 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 estimate 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 the fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. During the year ended June 30, 2015, the University evaluated certain real estate investments for impairment. The properties evaluated previously earned rental income but sat vacant during 2015. Management completed an impairment analysis for the vacant properties and recorded an impairment loss of $591,032 in 2015. During 2016, management determined that there were no further impairment losses related to the real estate properties. Temporarily And Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the University 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 University in perpetuity. Page 11
Contributions 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 statement of activities as net assets released from restrictions. Gifts having donor stipulations which are satisfied in the period the gift is received are reported as unrestricted revenue and net assets. 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 funds are expended for the construction of long-lived assets. 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 reported at the present value of estimated future cash flows. The resulting discount is amortized using the level-yield method 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. Government Grants Support funded by grants is recognized as the University performs the contracted services or incurs outlays eligible for reimbursement under the grant agreements. Grant activities and outlays are subject to audit and acceptance by the granting agency and, as a result of such audit, adjustments could be required. Income Taxes The University is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and a similar provision of state law. However, the University is subject to federal income tax on any unrelated business taxable income. The University files tax returns in the U.S. federal jurisdiction. With a few exceptions, the University is no longer subject to U.S. federal examinations by tax authorities for years before 2013. Page 12
Functional Allocation Of Expenses The costs of supporting the various programs and other activities have been summarized on a functional basis in the statements of activities. Certain costs have been allocated among the program categories based on various methods. Fundraising The University participated in various fundraising activities such as direct mail campaigns and special events. The expenses related to these fundraising activities are recorded in institutional support and approximated $1,690,000 and $1,743,000 for the years ended June 30, 2016 and 2015, respectively. Transfers Between Fair Value Hierarchy Levels Transfers in and out of Level 1 (quoted market prices) and 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 presentation used in the 2016 financial statements. These reclassifications had no effect on the change in net assets. Subsequent Events Subsequent events have been evaluated through December 28, 2016, which is the date the financial statements were available to be issued. Page 13
Correction Of Error The University has restated the financial statements for the year ended June 30, 2015 to correct an error in accounting in which certain revenue was recognized prior to the completion of the earnings process. Certain revenue from an educational program was recorded when received instead of over the course term. The impact of the correction of the error, which have been adjusted in the restated financial statements, are as follows at June 30, 2015 and the year then ended. As Originally Financial Statement Line Item Stated Restatement As Restated Unrestricted net assets, beginning of year (2015) $ 17,105,871 $ (610,733) $ 16,495,138 Net assets - beginning of year 66,637,049 (610,733) 66,026,316 Deferred revenue 3,879,931 1,041,003 4,920,934 Unrestricted student tuition and fees 64,122,848 (430,270) 63,692,578 Unrestricted net assets, end of year 29,367,878 (1,041,003) 28,326,875 Net assets - end of year 74,473,975 (1,041,003) 73,432,972 2. Property And Equipment Property and equipment consists of: 2016 2015 Land $ 5,030,255 $ 5,033,395 Buildings and leasehold improvements 105,898,964 83,330,342 Equipment, furniture and fixtures 34,040,593 32,654,343 Construction in progress 1,267,943 22,498,922 146,237,755 143,517,002 Less accumulated depreciation 56,646,177 53,679,066 $ 89,591,578 $ 89,837,936 Depreciation expense was $3,747,909 and $2,994,170 for the years ended June 30, 2016 and 2015, respectively. Page 14
3. Notes Receivable The University makes uncollateralized loans to students through its participation in the Federal Perkins Loan (FPL) program. The availability of funds under the FPL program is dependent on reimbursement to the loan fund from repayments on outstanding loans. Cumulative funds advanced by the federal government to the FPL program totaled approximately $1,706,000 as of June 30, 2016 and 2015. These advances are ultimately refundable to the federal government and are classified as liabilities in the statements of financial position along with any gains or losses allocated to the cumulative federal capital contributions. Outstanding loans canceled under the program result in a reduction of funds available for future loans and a decrease in the University s liability to the federal government. These outstanding loan amounts represent approximately 2% of total assets as of June 30, 2016 and 2015. 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 FPL program, the federal government bears the risk of loss of uncollectible loans provided the University performs required collection due diligence procedures. Loans receivable under the FPL program were $2,267,525 and $2,359,543 as of June 30, 2016 and 2015, respectively. The allowance for the doubtful loans was $11,200 in each year. The following represents the amounts due under the University s loan program as of June 30, 2016 and 2015: 2016 2015 Not in repayment status - current $ 1,183,198 $ 1,153,765 On schedule in repayment status - current 497,941 591,634 In default less than 240 days 155,676 192,673 In default more than 240 days and less than two years 80,649 92,270 In default two to five years 111,930 113,428 In default more than five years 249,331 226,973 2,278,725 2,370,743 Less: Allowance for doubtful accounts 11,200 11,200 $ 2,267,525 $ 2,359,543 Page 15
Additionally, as part of the sale of Rockhurst University Continuing Education Center (see Note 16), the University received a promissory note receivable for $2,700,000 which had a 3.25% interest rate and was due on March 31, 2016. The University recorded $21,938 of interest receivable at June 30, 2015 related to the promissory note receivable within accounts receivable on the statement of financial position. The promissory note receivable was collected in full on March 31, 2016 and therefore no accrued interest was recorded at June 30, 2016. 4. Investments Investments at June 30, 2016 and 2015 consist of the following: 2016 2015 Investments at fair value: Cash, money market and other funds $ 4,018,218 $ 5,913,704 Marketable CDs 494,239 475,344 Domestic equity securities 6,623,319 6,447,081 Foreign equity securities 2,423,707 2,641,072 Mutual funds 13,286,870 13,672,152 Mortgage-backed securities 978,210 1,104,196 Corporate debt securities 1,286,828 1,210,123 Assets under irrevocable trust 1,623,111 1,725,125 Other 125,776 108,694 30,860,278 33,297,491 Investments at historical cost Real estate 1,319,647 1,391,341 Other 603,989 558,678 $ 32,783,914 $ 35,247,510 The University has significant investments in marketable securities which are subject to price fluctuations. This risk is controlled through a diversified portfolio and regular monitoring procedures. Page 16
For the years ended June 30, 2016 and 2015, investment return consisted of the following and is reflected as such in the statements of activities: 2016 2015 Interest and dividend income $ 1,015,613 $ 1,005,952 Realized and unrealized gains (losses) Unrealized losses (1,714,993) (3,718,603) Realized gains 278,174 2,682,382 Net realized and unrealized losses (1,436,819) (1,036,221) $ (421,206) $ (30,269) The University is the beneficiary under certain trusts including a perpetual trust administered by outside parties. Under the terms of the trusts, the University has the irrevocable right to receive income earned on the trust assets in perpetuity, but never receives the assets held in trust. The estimated value of the expected future cash flows is $1,623,111 and $1,725,125 as of June 30, 2016 and 2015, respectively. The loss from these trusts for 2016 and 2015 was $27,043 and $29,658, respectively. 5. Contributions Receivable Contributions receivable at June 30, 2016 and 2015 consisted of the following: 2016 2015 Due within one year $ 897,086 $ 1,005,506 Due in one to five years 965,429 1,426,097 Due in more than five years 780,000 870,000 2,642,515 3,301,603 Less: Allowance for uncollectible contributions 100,000 100,000 Unamortized discount 482,472 447,847 $ 2,060,043 $ 2,753,756 Approximately 13% and 8% of the gross outstanding contributions receivable as of June 30, 2016 and 2015, respectively, were due from related parties or affiliated entities. One donor made up approximately 42% and 36% of the total gross contributions receivable at June 30, 2016 and 2015, respectively. The discount rate utilized was 5% for 2016 and 2015. Page 17
6. Line Of Credit The University had an $8,000,000 revolving bank line of credit that was renewed and extended on June 12, 2015. The outstanding balance at June 30, 2015 was $6,388,639. With the renewal, certain modifications were made to the credit agreement, including changes to calculation of liquidity ratios and increases of net asset to total debt ratio requirements for the years ended June 30, 2016 and 2015, and the quarters ended December 31, 2015 and 2014, and extending the maturity date of the line to June 14, 2016. During 2016, the line of credit was paid off and the credit agreement was closed. On June 10, 2016, the University entered into a credit agreement with another bank, providing a $10,800,000 revolving line of credit expiring June 10, 2017. The outstanding balance at June 30, 2016 was $8,727,201. The line is collateralized by substantially all of the University s assets. Interest varies with an adjusted 30-day BBA LIBOR (London Interbank Offered Rate) plus 1.5%, which was 2.0% at June 30, 2016 and is payable monthly. The credit agreement includes restricted covenants which require the University to maintain certain financial covenants, which were not met by the University as of June 30, 2016. The University received a waiver for these violations effective through June 30, 2017. Page 18
7. Notes And Bonds Payable Notes and bonds payable consist of the following: 2016 2015 Educational Facilities Refunding Revenue Bonds - 2011 Series A (A) $ 18,948,750 $ 19,498,750 Variable Rate Demand Bonds Educational Facilities Refunding Revenue Bonds - 2011 Series B (B) 19,750,000 Educational Facilities Revenue Bonds - 2015 Series A (C) 5,460,000 Variable Rate Educational Facilities Revenue Bonds- 2015 Series B (D) 13,970,000 American Recovery and Reinvestment Act of 2009; State Energy Program Loan (E) 846,459 956,660 Other 82,910 190,720 $ 39,308,119 $ 40,396,130 A. Obligations issued by the University; maturing serially at varying amounts through October 1, 2035; debt service payments to meet and pay the principal of, redemption premium, if any, and interest on the bonds as they become due and payable; interest payments at rates ranging from 3% to 6.5%; secured by first lien on the University s educational facilities and by assignment of the net revenue derived therefrom. The bonds are subject to redemption and payment prior to maturity in whole or in part from time to time on any interest payment date at redemption prices set in the bond agreement. B. Obligations issued by the University; maturing serially at varying amounts through November 1, 2032; debt service payments to meet and pay the principal of, redemption premium, if any, and interest on the bonds as they become due and payable; interest payments are at variable rates that are adjusted daily based on market interest rates; secured by first lien on the University s educational facilities and by assignment of the net revenue derived therefrom. The bonds are subject to redemption and payment prior to maturity in whole or in part from time to time at redemption prices set in the bond agreement. Page 19
The University maintained a letter of credit facility relating to the bonds above, which expired on February 14, 2014, that permitted the trustee to draw an amount up to the principal amount outstanding should the bonds not be remarketed and become due. If the letter of credit was drawn upon, the University would have been required to repay the Bank Bonds by the expiration date of the letter of credit at an interest rate equal to the greater of BBA LIBOR (London Interbank Offered Rate) Daily Floating Rate plus 2.5% or 5.5%. On August 28, 2013, the University entered into a new letter of credit facility with another bank to replace the letter of credit facility described above. The new letter of credit, which expires on August 28, 2016, permits the trustee to draw an amount up to the principal amount outstanding should the bonds not be remarketed and become due. If the letter of credit is drawn upon, the University would be required to repay the Bank Bonds by the expiration date of the letter of credit at an interest rate equal to the greater of the prime rate plus 1.5%, the Federal Funds Rate plus 3%, or 7.5%. On December 9, 2015, the University terminated this letter of credit when it redeemed the 2011 Series B bonds as mentioned below in item (E). C. Obligations issued by the University; maturing serially at varying amounts through November 1, 2025; debt service payments to meet and pay the principal of, redemption premium, if any, and interest on the bonds as they become due and payable; interest rate of 2.38%; secured by first lien on the University s educational facilities and by assignment of the net revenue derived therefrom. The bonds are subject to redemption and payment prior to maturity in whole or in part from time to time on any interest payment date at redemption prices set in the bond agreement. D. Obligations issued by the University; maturing serially at varying amounts through November 1, 2032; debt service payments to meet and pay the principal of, redemption premium, if any, and interest on the bonds as they become due and payable; interest payments are at variable rates that are adjusted daily based on market interest rates; secured by first lien on the University s educational facilities and by assignment of the net revenue derived therefrom. The bonds are subject to redemption and payment prior to maturity in whole or in part from time to time at redemption prices set in the bond agreement. E. Loan proceeds obtained through the American Recovery and Reinvestment Act of 2009 State Energy Program; semi-annual payments due through maturity date of February 1, 2023; interest rate of 2%. Page 20
On December 9, 2015, the University issued $5,460,000 in 2015 Series A (C) Educational Facilities Revenue Bonds and $13,970,000 in 2015 Series B (D) Variable Rate Educational Facilities Revenue Bonds. The proceeds were used to redeem the 2011 Series B Bonds (B). One interest rate swap was terminated on this date; the other interest rate swap that was entered in conjunction with the 2011 bond issuance remains in place. The loss incurred on this current refunding was $151,214 and is included as an expense in the statement of activities for the year ending June 30, 2016. The Educational Facilities Refunding Revenue Bonds noted above at item (A) and the Educational Facilities Revenue Bonds noted above at item (C) and the Variable Rate Educational Facilities Revenue Bonds noted above at item (D) require the University to maintain certain financial covenants, which were not met by the University as of June 30, 2016. The University received a waiver for these violations effective through June 30, 2017. Interest expense totaled $2,461,559 and $2,529,226 for the years ended June 30, 2016 and 2015, respectively. Aggregate annual maturities of long-term debt at June 30, 2016 that include both the scheduled contractual maturities of the variable rate demand bonds as described above are as follows: Scheduled Year Contractual Maturities 2017 $ 1,829,007 2018 1,799,517 2019 1,866,822 2020 1,942,223 2021 2,016,732 Thereafter 29,853,818 $ 39,308,119 Page 21
8. Derivative Financial Instruments As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows due to interest rate fluctuations, the University entered into two interest rate swap agreements in October 2002. One agreement provides for the University to receive interest from the counterparty at 70% of the one-month LIBOR and to pay interest to the counterparty at a fixed rate of 3.96% on an amortizing notional amount (initially $18,190,000). The notional amount was $13,805,000 and $14,280,000 at June 30, 2106 and 2015, respectively. This agreement expires on November 1, 2032. The second agreement provides for the University to receive interest from the counterparty at 70% of the one-month LIBOR and to pay interest at a fixed rate of 3.96% on an amortizing notional amount (initially $8,630,000). This agreement expires November 1, 2017. This agreement was terminated on December 7, 2015. In consideration of the early termination of the agreement, the University paid $313,000, which is included as an expense in the statements of activities. Under these agreements, the University pays or receives the net interest amount monthly, with the monthly settlements included in interest expense. The agreements are recorded at fair value with subsequent changes in fair value included in unrestricted changes in net assets on the accompanying statements of activities. The University allocates interest expense to various expense categories on the statements of activities. For the years ended June 30, 2016 and 2015, an unrealized loss of $405,734 and an unrealized gain of $92,086, respectively, was recorded for the derivative instruments. The aggregate fair value of the interest rate swap agreements, based upon quoted market prices for contracts with similar maturities, was a liability of $3,847,069 and $3,441,636 as of June 30, 2016 and 2015, respectively, and is recorded as interest rate swap agreements on the accompanying statement of financial position. Page 22
9. Temporarily Restricted Net Assets At June 30, 2016 and 2015, temporarily restricted net assets are available for the following purposes or periods: 2016 2015 Scholarships $ 609,440 $ 633,252 Assets under irrevocable trust 644,553 653,986 Property and equipment 1,667,193 2,969,554 Donor restricted endowment earnings (Note 11) 4,009,052 4,739,248 Contributions receivable 775,531 1,298,919 Other 327,323 1,129,909 $ 8,033,092 $ 11,424,868 Net Assets Released From Restrictions Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors. These amounts released during the years ended June 30, 2016 and 2015 are as follows: 2016 2015 Expenditures for capital projects $ 3,417,869 $ 3,772,331 Scholarships 284,996 281,278 Appropriation of endowment assets for expenditure 1,383,000 1,410,000 Satisfaction of purpose restrictions 102,337 2,848,065 $ 5,188,202 $ 8,311,674 10. Permanently Restricted Net Assets At June 30, 2016 and 2015, permanently restricted net assets are restricted to: 2016 2015 Endowment net assets, subject to SPMIFA $ 33,278,364 $ 32,257,715 Beneficial interest in irrevocable trust 1,030,169 1,092,768 Contributions receivable 302,443 330,746 Permanently restricted net assets $ 34,610,976 $ 33,681,229 Page 23
11. Endowment Interpretation Of State Law The University s endowment consists of approximately 230 individual funds established for a variety of purposes. The endowment includes both donor-restricted endowment funds and funds designated by the governing body 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 University s governing body has interpreted the State of Missouri Prudent Management of Institutional Funds Act (SPMIFA), adopted in August 2009, 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 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 donor-restricted endowment funds are classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the University considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: 1. Duration and preservation of the fund. 2. Purposes of the University 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. 6. Other resources of the University. 7. Investment policies of the University. Page 24
The composition of net assets by type of endowment fund at June 30, 2016 and 2015 is: 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds subject to SPMIFA $ (2,492,733) $ 4,009,052 $ 33,278,364 $ 34,794,683 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds subject to SPMIFA $ (1,710,615) $ 4,739,248 $ 32,257,715 $ 35,286,348 Changes in endowment net assets subject to SPMIFA for the years ended June 30, 2016 and 2015 are: 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Assets - Beginning Of Year $ (1,710,615) $ 4,739,248 $ 32,257,715 $ 35,286,348 Investment return (782,118) 652,804 (129,314) Contributions and collections on pledges 1,020,649 1,020,649 Appropriation of endowment assets for expenditure (1,383,000) (1,383,000) Endowment Assets - End Of Year $ (2,492,733) $ 4,009,052 $ 33,278,364 $ 34,794,683 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Assets - Beginning Of Year $ (459,645) $ 6,970,409 $ 30,719,113 $ 37,229,877 Investment return (1,250,970) (821,161) (2,072,131) Contributions and collections on pledges 1,538,602 1,538,602 Appropriation of endowment assets for expenditure (1,410,000) (1,410,000) Endowment Assets - End Of Year $ (1,710,615) $ 4,739,248 $ 32,257,715 $ 35,286,348 Page 25
From time to time, the fair value of assets associated with individual donorrestricted endowment funds may fall below the level the University 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 in the aggregate totaled $2,492,733 and $1,354,604 at June 30, 2016 and 2015, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after investment of new permanently restricted contributions and continued appropriation for certain purposes that was deemed prudent by the governing body. Assets of the endowment fund are pooled on a market value basis. Each individual pooled endowment fund subscribes to or disposes of units on the basis of the per-unit market value at the beginning of the calendar month within which the transaction takes place. Under the University s endowment spending policy, for operational purposes the Board of Trustees annually directs that a percentage of a three-year rolling average market value of investments held for endowment purposes be allocated as a distribution of endowment income for current operations. For 2016 and 2015, such percentage was 5% and the allocation totaled $1,383,000 and $1,410,000, respectively. The University 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 University must hold in perpetuity or for donor-specified periods, as well as those of board-designated endowment funds. Under the University s policies, endowment assets are invested in a manner that is intended to maintain purchasing power, while reducing, to the greatest extent possible, the possibility of loss. The endowment fund s return is measured on a time weighted total return basis over a one-, three- and five-year period of time against appropriate benchmarks and a manager universe of funds having a similar investment style. To satisfy its long-term rate of return objectives, the University relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The University 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. Page 26
12. Retirement Plan Retirement benefits are provided for substantially all University employees through a contributory purchase plan for annuity contracts with the Teachers Insurance and Annuity Association and/or College Retirement Equities Fund. The University matches a certain percentage of employee contributions to the Plan. Total contributions to the plans were approximately $998,000 and $955,000 for 2016 and 2015, respectively. 13. Self-Funded Health Plan The University maintains a self-funded health insurance plan for its employees. The Plan provides certain medical and hospitalization benefits to employees and their eligible dependents. Under the Plan, the University s losses are limited through the use of excess loss insurance that pays 100% of the excess of individual claims exceeding $150,000. Benefits are funded by monthly premiums received from eligible participants and contributions from the University. The University determines contribution levels for participants in the Plan. Claims paid, net of reinsurance receipts, under the Plan for 2016 and 2015 totaled $1,496,116 and $2,133,825, respectively. Accrued liabilities include an estimate of the University s liability for claims incurred but not paid through June 30, 2016 and 2015 of approximately $142,000 and $342,000, respectively. 14. 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. Page 27