ROCKHURST UNIVERSITY FINANCIAL STATEMENTS JUNE 30, 2017
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 - 32
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Independent Auditors’ Report
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Board of Trustees Rockhurst University Kansas City, Missouri
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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, 2017 and 2016, 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 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 the University as of June 30, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Emphasis Of Matter As discussed in Note 1 to the financial statements, the 2016 financial statements have been restated to correct a misstatement. Additionally, the University adopted a new accounting principle with respect to the accounting treatment of art collections. The University also implemented new guidance within the Accounting Standards Codification which changed the presentation of debt issuance costs. All matters are discussed in Note 1 to the financial statements. Our opinion is not modified with respect to these matters. 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, 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.
Page 2
Board of Trustees Rockhurst University
Other Reporting Required By Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 20, 2017 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.
October 20, 2017
Page 3
ROCKHURST UNIVERSITY STATEMENT OF FINANCIAL POSITION Assets June 30, 2016 (As Restated)
2017 Cash and cash equivalents Accounts receivable, net of allowance; 2017 and 2016 - $225,000 and $200,000, respectively Investments Art collection Contributions receivable, net of allowance; 2017 and 2016 - $100,000 Notes receivable, net of allowance; 2017 and 2016 - $17,258 and $25,157, respectively Property and equipment, net Restricted cash and cash equivalents Other Total Assets
$
1,041,673
$
827,186
2,240,909 32,744,550 1,207,170
1,578,685 32,783,914 1,207,170
5,444,144
2,060,043
2,276,997 87,629,547 1,738,488 208,918
2,267,525 89,591,578 1,734,257 1,023,729
$ 134,532,396
$ 133,074,087
$
$
Liabilities And Net Assets Liabilities Line of credit Accounts payable Accrued expenses Deferred revenue Deposits held for others Notes and bonds payable, net of unamortized debt issuance costs Annuities payable Interest swap agreements Asset retirement obligation Federal contributions to loan program Total Liabilities Net Assets Unrestricted Temporarily restricted Permanently restricted Total Net Assets Total Liabilities And Net Assets
See the accompanying notes to financial statements.
8,305,425 1,681,569 1,482,651 3,825,440 339,395
8,727,201 1,637,930 2,398,337 4,290,800 301,084
36,128,759 4,469 2,655,398 791,353 1,745,940 56,960,399
38,410,220 7,229 3,847,069 776,610 1,730,812 62,127,292
30,312,814 11,691,435 35,567,748 77,571,997
28,415,204 8,033,092 34,498,499 70,946,795
$ 134,532,396
$ 133,074,087
Page 4
ROCKHURST UNIVERSITY STATEMENT OF ACTIVITIES For The Year Ended June 30, 2017
Unrestricted Revenues, Gains And Other Support Student tuition and fees Less: Institutional financial aid Net tuition and fees
$
65,971,335 31,235,530 34,735,805
Temporarily Restricted $
— — —
Permanently Restricted $
— — —
Total $
65,971,335 31,235,530 34,735,805
528,881 1,590,056 2,842,875 7,640,315 1,678,520 1,716,025
— 868,087 4,498,281 — 8,000 (1,716,025)
— 41,628 1,027,621 — — —
528,881 2,499,771 8,368,777 7,640,315 1,686,520 —
50,732,477
3,658,343
1,069,249
55,460,069
17,310,297 10,152,120 412,064 1,805,090 5,982,491 5,541,825 8,857,856 50,061,743
— — — — — — — —
— — — — — — — —
17,310,297 10,152,120 412,064 1,805,090 5,982,491 5,541,825 8,857,856 50,061,743
Changes In Net Assets Before Unrealized Gain On Interest Rate Swap Agreements And Other Gains (Losses)
670,734
3,658,343
1,069,249
5,398,326
Gain On Disposal Of Property And Equipment
232,972
—
—
232,972
Loss On Disposal Of Property And Equipment
(197,767)
—
—
(197,767)
Grants and contracts Investment return Private gifts, net Auxiliary enterprises Other Net assets released from restriction Total Operating Revenues, Gains And Other Support Expenses Instructional Institutional support Sponsored programs Student aid Academic support Student services Auxiliary enterprises Total Expenses
Unrealized Gain On Interest Rate Swap Agreements
1,191,671
—
—
1,191,671
Change In Net Assets
1,897,610
3,658,343
1,069,249
6,625,202
28,415,204
8,033,092
34,498,499
70,946,795
Net Assets - Beginning Of Year Net Assets - End Of Year
$
See the accompanying notes to financial statements.
30,312,814
$
11,691,435
$
35,567,748
$
77,571,997
Page 5
ROCKHURST UNIVERSITY STATEMENT OF ACTIVITIES For The Year Ended June 30, 2016 (As Restated)
Unrestricted Revenues, Gains (Losses) And Other Support Student tuition and fees Less: Institutional financial aid Net tuition and fees
$
Grants and contracts Investment return Private gifts, net Auxiliary enterprises Other Net assets released from restriction Total Operating Revenues, Gains (Losses) And Other Support
64,457,376 29,742,401 34,714,975
Temporarily Restricted $
584,633 (144,504) 1,275,364 7,732,434 1,890,886 4,687,209 50,740,997
Expenses Instructional Institutional support Sponsored programs Student aid Academic support Student services Auxiliary enterprises Total Expenses
17,470,401 10,306,032 427,778 2,559,059 6,022,724 5,600,739 8,834,177 51,220,910
Changes In Net Assets Before Unrealized Gain On Interest Rate Swap Agreements And Other Losses
$
— — —
Total $
64,457,376 29,742,401 34,714,975
— (260,584) 1,555,659 — 358 (4,687,209)
— (16,118) 945,865 — — —
(3,391,776)
929,747
48,278,968
— — — — — — — —
17,470,401 10,306,032 427,778 2,559,059 6,022,724 5,600,739 8,834,177 51,220,910
— — — — — — — —
(479,913)
Loss On Disposal Of Property And Equipment
— — —
Permanently Restricted
(3,391,776)
584,633 (421,206) 3,776,888 7,732,434 1,891,244 —
929,747
(2,941,942)
(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)
929,747
(3,693,347)
Change In Net Assets
(1,231,318)
(3,391,776)
Net Assets - Beginning Of Year, As Previously Reported
28,326,875
11,424,868
— 1,319,647
— —
29,646,522
11,424,868
Cumulative Effect Of Change In Accounting Principle Cumulative Effect Of Error Net Assets - Beginning Of Year, As Restated Net Assets - End Of Year
$
See the accompanying notes to financial statements.
28,415,204
$
8,033,092
$
33,681,229
73,432,972
1,207,170 (1,319,647)
1,207,170 —
33,568,752
74,640,142
34,498,499
$
70,946,795
Page 6
ROCKHURST UNIVERSITY STATEMENT OF CASH FLOWS Page 1 Of 2
For The Years Ended June 30, 2016 (As Restated)
2017 Cash Flows From Operating Activities Change in net assets Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization Amortization of debt issuance costs reported as interest expense Net realized and unrealized (gains) and losses on investments Loss (gain) on disposal of property and equipment Change in contributions receivable discount Change in fair value of interest swap agreements Contributions received restricted for long-term investment or acquisition of long-lived assets Changes in: Accounts receivable Other assets Contributions receivable Accounts payable and accrued expenses Deferred revenue Deposits held for others Annuities payable Other liabilities Net Cash Provided By (Used In) Operating Activities Cash Flows From Investing Activities Purchase of property and equipment Proceeds from disposal of property and equipment Purchase of investments Proceeds from disposition of investments Principal payments received on notes receivable Repayments on note receivable from sale of RUCEC Restricted cash and cash equivalents Net Cash Provided By (Used In) Investing Activities
See the accompanying notes to financial statements.
$
6,625,202
$
(3,693,347)
3,941,656
3,741,917
51,584 (1,303,003) (35,205) 385,038 (1,191,671)
5,992 1,436,819 32,671 34,625 405,433
(1,161,313)
(1,020,649)
(662,224) 814,811 (3,769,139) (872,047) (465,360) 38,311 (2,760) 29,871 2,423,751
(665,792) (64,689) 595,447 (5,525,467) (630,134) 43,643 (1,730) 45,462 (5,259,799)
(2,577,923) 633,503 (19,178,255) 20,520,622 (9,472) — (4,231) (615,756)
(898,122) — (5,034,765) 6,125,183 92,018 2,700,000 686,249 3,670,563
Page 7
ROCKHURST UNIVERSITY STATEMENT OF CASH FLOWS Page 2 Of 2
For The Years Ended June 30, 2016 (As Restated)
2017 Cash Flows From Financing Activities Proceeds from contributions and pledges restricted for long-term investment or acquisition of long-lived assets Borrowings on line of credit Repayments on line of credit Redemption of bonds payable Proceeds from issuance of notes and bonds payable Principal payments on notes and bonds payable Net Cash Provided By (Used In) Financing Activities
$
1,161,313 $ (33,777,776) 33,356,000 — 47,475 (2,380,520) (1,593,508)
1,020,649 (27,808,955) 30,147,517 (18,885,001) 19,430,000 (1,633,010) 2,271,200
Net Increase In Cash And Cash Equivalents
214,487
681,964
Cash And Cash Equivalents - Beginning Of Year
827,186
145,222
Cash And Cash Equivalents - End Of Year Supplemental Cash Flow Information Interest paid Retainage payable on construction in progress Accounts payable incurred for property and equipment purchases
See the accompanying notes to financial statements.
$
1,041,673
$
827,186
$
2,452,288 — —
$
2,520,475 96,108 242,403
Page 8
ROCKHURST UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2017 And 2016
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 and gains and losses on disposals of property and equipment. Use Of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (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 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, 2017 and 2016, cash equivalents consisted primarily of money market accounts with brokers and certificates of deposit. At June 30, 2017, the University’s cash accounts did not exceed federally insured limits.
Page 9
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) 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.
Page 10
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) Debt Issuance Costs Debt issuance costs are capitalized as incurred and are being amortized using the straight-line method over the term of the debt. The straight-line method is used as it is not materially different from the effective interest rate method. Amortization expense totaled to $51,584 and $55,383 for each of the years ended June 30, 2017 and 2016, respectively. Amortization expense is included in interest expense in the statement of activities. Accumulated amortization was $275,101 and $223,517 at June 30, 2017 and 2016, respectively. 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. New Accounting Standard Implemented During the year ended June 30, 2017, the University implemented changes to the Accounting Standards Codification caused by Accounting Standards Update 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The objective of this change is to simplify the presentation of debt issuance costs. This amendment requires that debt issuance costs related to a recognized debt liability be presented in the statement of financial position as a direct deduction from the carrying amount of the debt liability, consistent with the presentation of debt discounts. Previously, debt issuance costs were shown net of accumulated amortization on the statement of financial position as an asset. The University’s implementation of this new accounting guidance resulted in certain presentation changes to the statement of financial position. The effect of these changes has been applied retrospectively. Other assets were reduced by $846,315 and $897,899 at June 30, 2017 and 2016, respectively, as a result of this change. This change had no effect on net assets or the change in net assets. 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.
Page 11
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) 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
20 - 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 estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to 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. Art Collection The art collection includes various pieces of art such as drawings, paintings, sculptures and pottery that are catalogued and held on display throughout campus. The art collection includes artwork donated to the University that is required to be held in perpetuity (see Note 10). The University has elected to report the art at cost or, if donated, fair value at the date of donation. The University has elected to not depreciate the art collection as the art has cultural value and is preserved and protected perpetually. 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. 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.
Page 12
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) 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 2014. 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.
Page 13
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) 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 $1,748,000 and $1,690,000 for the years ended June 30, 2017 and 2016, 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 2016 financial statements to conform to the presentation used in the 2017 financial statements. These reclassifications had no effect on the change in net assets. Subsequent Events Management evaluates subsequent events through the date the financial statements were available for issue, which is the date of the Independent Auditors’ Report. Correction Of Error And Change In Accounting Principle The University has restated the financial statements for the year ended June 30, 2016 to correct an error in accounting in which certain real estate assets held for investment were incorrectly classified as permanently restricted net assets. The University has also restated the financial statements for the year ended June 30, 2016 to reflect a change in accounting principle. The University changed its policy related to the capitalization of its art collection. Previously, the art collection was not capitalized. The University elected to change its policy to capitalize its art collection to enhance transparency and better reflect the assets of the University.
Page 14
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) The impact of both the correction of the error and change in accounting principle, which have been adjusted in the restated financial statements, are as follows at June 30, 2016 and the year then ended. These changes had no impact on the change in net assets for the year ending June 30, 2016.
Financial Statement Line Item Unrestricted net assets, beginning of year (2016) Unrestricted net assets, end of year (2016) Permanently restricted net assets, beginning of year (2016) Permanently restricted net assets, end of year (2016) Art collection, beginning of year (2016) Art collection, end of year (2016) Endowment permanently restricted assets, beginning of year (2016) Endowment permanently restricted assets, end of year (2016)
2.
Restatement Restatement Due To Change In Accounting As Principle For Originally Art Collection As Restated Stated Due To Error $ 28,326,875 27,095,557
$
1,319,647 1,319,647
$
— —
$ 29,646,522 28,415,204
33,681,229
(1,319,647)
1,207,170
33,568,752
34,610,976 — —
(1,319,647) — —
1,207,170 1,207,170 1,207,170
34,498,499 1,207,170 1,207,170
32,257,715
(1,319,647)
—
30,938,068
33,278,364
(1,319,647)
—
31,958,717
Property And Equipment Property and equipment consists of: 2017 Land Buildings and leasehold improvements Equipment, furniture and fixtures Construction in progress
2016
$
5,444,896 108,130,383 34,528,036 94,491 148,197,806 60,568,259
$
5,030,255 105,898,964 34,040,593 1,267,943 146,237,755 56,646,177
$
87,629,547
$
89,591,578
Less accumulated depreciation
Depreciation expense was $3,941,656 and $3,747,909 for the years ended June 30, 2017 and 2016, respectively.
Page 15
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued)
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 $1,708,000 as of June 30, 2017 and $1,706,000 as of June 30, 2016. 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, 2017 and 2016. 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 $2,276,997 and $2,267,525 as of June 30, 2017 and 2016, 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, 2017 and 2016: 2016
2017 Not in repayment status - current On schedule in repayment status - current In default less than 240 days In default more than 240 days and less than two years In default two to five years In default more than five years Less: Allowance for doubtful accounts
$ 1,086,003 565,045 183,695
$
80,649 111,930 257,199 2,292,682 25,157
81,151 100,868 277,493 2,294,255 17,258 $ 2,276,997
1,189,287 497,941 155,676
$
2,267,525
Page 16
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued)
4.
Investments Investments at June 30, 2017 and 2016 consist of the following: 2017 Investments at fair value: Cash, money market and other funds Marketable CDs Domestic equity securities Foreign equity securities Mutual funds Mortgage-backed securities Corporate debt securities Assets under irrevocable trust Other
$
Investments at historical cost: Real estate Other $
2,776,813 484,486 7,362,980 101,034 16,610,322 1,358,814 1,610,246 1,697,488 91,702 32,093,885
2016 $
4,018,218 494,239 6,623,319 2,423,707 13,286,870 978,210 1,286,828 1,623,111 125,776 30,860,278
— 650,665
1,319,647 603,989
32,744,550
$ 32,783,914
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. For the years ended June 30, 2017 and 2016, investment return consisted of the following and is reflected as such in the statements of activities: 2017 Interest and dividend income Realized and unrealized gains (losses): Unrealized losses Realized gains Net realized and unrealized gains (losses)
$ 1,196,768
2016 $
(437,849) 1,740,852 1,303,003 $ 2,499,771
1,015,613
(1,714,993) 278,174 (1,436,819) $
(421,206)
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. Page 17
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) The estimated value of the expected future cash flows is $1,697,488 and $1,623,111 as of June 30, 2017 and 2016, respectively. The income from these trusts for 2017 and 2016 was a gain of $137,597 and a loss of $27,043, respectively.
5.
Contributions Receivable Contributions receivable at June 30, 2017 and 2016 consisted of the following: 2017 Due within one year Due in one to five years Due in more than five years Less: Allowance for uncollectible contributions Unamortized discount
$ 2,094,608 3,617,046 700,000 6,411,654
2016 $
100,000 867,510 $ 5,444,144
897,086 965,429 780,000 2,642,515 100,000 482,472
$
2,060,043
Approximately 5% and 13% of the gross outstanding contributions receivable as of June 30, 2017 and 2016, respectively, were due from related parties or affiliated entities. Two donors made up approximately 72% and one donor made up approximately 42% of the total gross contributions receivable at June 30, 2017 and 2016, respectively. The discount rate utilized was 5% for 2017 and 2016.
6.
Line Of Credit On June 10, 2016, the University entered into a credit agreement with a bank, providing a $10,800,000 revolving line of credit expiring June 10, 2017. During 2017, the credit agreement was renewed and extended to June 10, 2018 with the same terms. The outstanding balance at June 30, 2017 and 2016 was $8,305,425 and $8,727,201, respectively. 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 2.6% and 2.0% at June 30, 2017 and 2016, respectively, and is payable monthly. The credit agreement includes restrictive 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. As of June 30, 2017, the University was in compliance with the restrictive covenants.
Page 18
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued)
7.
Notes And Bonds Payable Notes and bonds payable consist of the following: Educational Facilities Refunding Revenue Bonds - 2011 Series A (A)
$
Educational Facilities Revenue Bonds - 2015 Series A (B) Variable Rate Educational Facilities Revenue Bonds- 2015 Series B (C) American Recovery and Reinvestment Act of 2009; State Energy Program Loan (D) Other Less: Unamortized debt issuance costs $
2017
2016
18,375,000
$ 18,948,750
4,702,500
5,460,000
13,122,500
13,970,000
734,042
846,459
41,032
82,910
(846,315)
(897,899)
36,128,759
$ 38,410,220
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, 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.
Page 19
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) C.
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. D. 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%.
On December 9, 2015, the University issued $5,460,000 in 2015 Series A (B) Educational Facilities Revenue Bonds and $13,970,000 in 2015 Series B (C) Variable Rate Educational Facilities Revenue Bonds. The proceeds were used to redeem the 2011 Series B Bonds. 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 ended June 30, 2016. The Educational Facilities Refunding Revenue Bonds noted above at item (A) and the Educational Facilities Revenue Bonds noted above at item (B) and the Variable Rate Educational Facilities Revenue Bonds noted above at item (C) 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. As of June 30, 2017, the University was in compliance with the restrictive covenants. Interest expense totaled $2,136,344 and $2,461,559 for the years ended June 30, 2017 and 2016, respectively.
Page 20
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) Aggregate annual maturities of long-term debt at June 30, 2017 that include both the scheduled contractual maturities of the variable rate demand bonds as described above are as follows:
Year 2018 2019 2020 2021 2022 Thereafter
Scheduled Contractual Maturities $
1,832,303 1,905,481 1,963,813 2,024,232 2,109,178 27,140,067
$ 36,975,074
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 $13,275,000 and $13,760,000 at June 30, 2017 and 2016, 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 2016 statement of activities. Under this agreement, the University pays or receives the net interest amount monthly, with the monthly settlements included in interest expense. The agreement is 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.
Page 21
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) For the years ended June 30, 2017 and 2016, an unrealized gain of $1,191,671 and an unrealized loss of $405,734, respectively, was recorded for the derivative instruments in the statements of activities. The aggregate fair value of the interest rate swap agreements, based upon quoted market prices for contracts with similar maturities, was a liability of $2,655,398 and $3,847,069 as of June 30, 2017 and 2016, respectively, and is recorded as interest rate swap agreements on the accompanying statement of financial position.
9.
Temporarily Restricted Net Assets At June 30, 2017 and 2016, temporarily restricted net assets are available for the following purposes or periods: 2017 Scholarships Assets under irrevocable trust Property and equipment Donor-restricted endowment earnings (Note 11) Contributions receivable Other
$
1,066,736 625,689 1,307,656
2016 $
4,538,062 176,856 3,976,436 $
11,691,435
609,440 644,553 1,667,193 4,009,052 775,531 327,323
$
8,033,092
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, 2017 and 2016 are as follows: 2017 Expenditures for capital projects Scholarships Appropriation of endowment assets for expenditure Satisfaction of purpose restrictions
$
962,084 199,702
2016 $
435,330 118,909 $
1,716,025
3,417,869 284,996 882,007 102,337
$
4,687,209
Page 22
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued)
10.
Permanently Restricted Net Assets At June 30, 2017 and 2016, permanently restricted net assets are restricted to: 2017
2016
Endowment net assets, subject to SPMIFA Art collection Beneficial interest in irrevocable trust Contributions receivable
$
33,120,030 1,207,170 1,071,799 168,749
$ 31,958,717 1,207,170 1,030,169 302,443
Permanently restricted net assets
$ 35,567,748
$ 34,498,499
Permanently restricted net assets also include significant portions of campus art, some of which is subject to specific restrictions, which prohibits selling such pieces of art and requires the artwork to be transferred to the Nelson Gallery Foundation in the event that the University wishes to dispose of the artwork. Some of the other artwork can only be sold under specific restrictions, including that the proceeds be reinvested in new campus art. The total of campus art included in permanently restricted assets was $1,207,170 for both the years ended June 30, 2017 and June 30, 2016.
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 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.
Page 23
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) 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 donor-restricted endowment funds: 1. 2. 3. 4. 5. 6. 7.
Duration and preservation of the fund Purposes of the University and the fund General economic conditions Possible effect of inflation and deflation Expected total return from investment income and appreciation or depreciation of investments Other resources of the University Investment policies of the University
The composition of net assets by type of endowment fund at June 30, 2017 and 2016 is: 2017 Temporarily
Permanently
Restricted
Restricted
Unrestricted
Total
Donor-restricted endowment funds subject to SPMIFA
$ (1,939,555) $
4,538,062
$
33,120,030
$
35,718,537
2016 Temporarily
Permanently
Restricted
Restricted
Unrestricted
Total
Donor-restricted endowment funds subject to SPMIFA
$ (2,492,733) $
4,009,052
$
31,958,717
$
33,475,036
Page 24
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) Changes in endowment net assets subject to SPMIFA for the years ended June 30, 2017 and 2016 are: Temporarily Unrestricted Restricted Endowment Assets - Beginning Of Year Investment return Contributions and collections on pledges Appropriation of endowment assets for expenditure Endowment Assets - End Of Year
$ (2,492,733) $
4,009,052
Investment return Contributions and collections on pledges Appropriation of endowment assets for expenditure Endowment Assets - End Of Year
$
31,958,717
Total $
33,475,036
1,514,848
964,340
—
2,479,188
—
—
1,161,313
1,161,313
(961,670) $ (1,939,555) $
(435,330) 4,538,062
Temporarily Unrestricted Restricted Endowment Assets - Beginning Of Year
2017 Permanently Restricted
$ (1,710,615) $ (281,125) —
(500,993) $ (2,492,733) $
— $
33,120,030
$
2016 Permanently Restricted
4,739,248
$
30,938,068
151,811
—
—
1,020,649
(882,007) 4,009,052
(1,397,000)
Total $
31,958,717
33,966,701 (129,314) 1,020,649
— $
35,718,537
(1,383,000) $
33,475,036
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 $1,939,555 and $2,492,733 at June 30, 2017 and 2016, 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.
Page 25
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) 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 2017 and 2016, such percentage was 5%, and the allocation totaled $1,397,000 and $1,383,000, 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.
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 $1,040,900 and $998,000 for 2017 and 2016, respectively.
Page 26
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued)
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 2017 and 2016 totaled $1,735,290 and $1,496,116, respectively. Accrued liabilities include an estimate of the University’s liability for claims incurred but not paid through June 30, 2017 and 2016 of approximately $92,000 and $142,000, 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
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 supported by little or no market activity and are significant to the fair value of the assets or liabilities
Page 27
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) Recurring Measurements The following tables present the fair value measurements of assets and liabilities recognized in the accompanying statement of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2017 and 2016: June 30, 2017 Level 2 Level 3
Level 1 Investments: Cash, money market and other funds Marketable CDs Domestic equity securities Foreign equity securities Mutual funds Other Mortgage-backed securities Corporate debt securities Assets under irrevocable trust Total investments
$
Restricted cash and cash equivalents at fair value: Money market Total restricted cash and cash equivalents Interest rate swap agreements
2,776,813 484,486 7,362,980 101,034 16,610,322 91,702 — — — 27,427,337
$
1,738,488 1,738,488 $
—
$
Restricted cash and cash equivalents at fair value: Money market Total restricted cash and cash equivalents Interest rate swap agreements
4,018,218 494,239 6,623,319 2,423,707 13,286,870 125,776 — — — 26,972,129
1,734,257 1,734,257 $
—
$
— —
— — — — — — — — 1,071,799 1,071,799
$
— —
$ (2,655,398) $
—
$
— — — — — — 978,210 1,286,828 592,942 2,857,980
$
— — $ (3,847,069) $
— — — — — — — — 1,030,169 1,030,169
$
(2,655,398)
Total $
— — —
2,776,813 484,486 7,362,980 101,034 16,610,322 91,702 1,358,814 1,610,246 1,697,488 32,093,885
1,738,488 1,738,488
June 30, 2016 Level 2 Level 3
Level 1 Investments: Cash, money market and other funds Marketable CDs Domestic equity securities Foreign equity securities Mutual funds Other Mortgage-backed securities Corporate debt securities Assets under irrevocable trust Total investments
— — — — — — 1,358,814 1,610,246 625,689 3,594,749
Total
4,018,218 494,239 6,623,319 2,423,707 13,286,870 125,776 978,210 1,286,828 1,623,111 30,860,278
1,734,257 1,734,257 $
(3,847,069)
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying statement of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. Page 28
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) There have been no significant changes in the valuation techniques during the years ended June 30, 2017 or 2016. Investments Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The classification of assets under irrevocable trust held as Level 3 measurements is based on the ownership and permanently restricted status of these funds, and not based on the underlying quality or integrity of the investments that make up the balances. Classification as Level 3 results because such assets are held in perpetual trusts and the University does not have access to liquidate the investments and reinvest in assets of the University’s choosing. Level 3 Measurements The table below presents information about recurring fair value measurements of Level 3 instruments: Assets Under
Irrevocable Trust Balance - July 1, 2015 Other changes Total losses for the period
$ 1,092,768 (46,481) (16,118)
Balance - June 30, 2016 Total gains for the period
1,030,169 41,629
Balance - June 30, 2017
$ 1,071,799
Gains and losses included in the change in net assets for the year ended June 30, 2017 are presented in the statement of activities as follows:
Page 29
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued)
Unrestricted Gains and losses for the period included in investment return
$
—
Restricted $
—
Restricted $
41,629
Total $
41,629
Gains and losses included in the change in net assets for the year ended June 30, 2016 are presented in the statement of activities as follows: Unrestricted Gains and losses for the period included in investment return
$
—
Restricted $
—
Restricted $
(16,118) $
Total (16,118)
Interest Rate Swap Agreements The fair value is estimated using forward-looking interest rate curves and discounted cash flows that are observable or can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. Nonrecurring Measurement Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying statement of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. Cash And Cash Equivalents The carrying amount is a reasonable estimate of fair value. Contributions Receivable Fair value is estimated by discounting the cash flows of the future payments expected to be received using rates of return on assets with similar cash flows. Notes Receivable A reasonable estimate of the fair value of the Federal Perkins loans due from students could not be made because the notes receivable are not salable and can only be assigned to the U.S. government or its designees. Notes And Bonds Payable The carrying amount is a reasonable estimate of fair value.
Page 30
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) Annuities Payable Fair values of the annuity obligations are based on an actuarial evaluation of the estimated annuity or other payments under such obligations.
15.
Asset Retirement Obligation Accounting standards require that an asset retirement obligation associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred or becomes determinable (as defined by the standard) even when the timing and/or method of settlement may be conditional on a future event. The University’s conditional asset retirement obligations primarily relate to asbestos contained in buildings that the University owns. Federal and state environmental regulations exist that require the University to handle and dispose of asbestos in a special manner if a building undergoes major renovations or is demolished. A summary of changes in asset retirement obligations is included in the table below: 2017 Liability - Beginning Of Year Liabilities settled Accretion expense Liability - End Of Year
16.
$ 776,610
2016 $
— 14,743 $ 791,353
744,147 (9,069) 41,532
$
776,610
Significant Estimates And Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: Litigation The University is subject to claims and lawsuits that arise primarily in the ordinary course of its activities. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, change in net assets and cash flows of the University.
Page 31
ROCKHURST UNIVERSITY Notes To Financial Statements (Continued) Accounts Receivable And Contributions Receivable Allowances Management believes that outstanding accounts receivable and contributions receivable allowances are reasonable as of June 30, 2017 and 2016. The estimate could change in future periods due to unforeseen events and circumstances. Asset Retirement Obligation As discussed in Note 15, the University has recorded a liability for its conditional asset retirement obligations related to asbestos. Investments The University invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the accompanying statement of financial position.
Page 32
