Rockhurst University Independent Auditor’s Report and Consolidated Financial Statements June 30, 2014 and 2013
Rockhurst University June 30, 2014 and 2013
Contents Independent Auditor’s Report............................................................................................... 1 Consolidated Financial Statements Statements of Financial Position ........................................................................................................ 3 Statements of Activities ...................................................................................................................... 4 Statements of Cash Flows .................................................................................................................. 6 Notes to Financial Statements ............................................................................................................ 8
Independent Auditor’s Report
Board of Trustees Rockhurst University Kansas City, Missouri
Report on the Financial Statements We have audited the accompanying consolidated financial statements of Rockhurst University (the University), which comprise the consolidated statements of financial position as of June 30, 2014 and 2013, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Board of Trustees Rockhurst University Page 2 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rockhurst University as of June 30, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Kansas City, Missouri December 15, 2014
Rockhurst University Consolidated Statements of Financial Position June 30, 2014 and 2013
Assets 2014 Cash and cash equivalents Accounts receivable, net of allowance; 2014 - $278,000; 2013 - $321,000 Inventories Prepaid expenses Investments Contributions receivable, net of allowance; 2014 - $100,000; 2013 - $125,000 Notes receivable, net of allowance; 2014 and 2013 - $11,200 Property and equipment, net Restricted cash and cash equivalents Other Total assets
$
2,679,081
2013 $
2,829,741
2,168,754 315,644 3,030,431 44,893,523
2,565,645 377,496 2,558,548 39,583,042
5,884,940
10,134,938
2,401,051 73,813,715 2,630,539 1,205,903
2,396,334 70,221,047 1,730,786 1,158,141
$ 139,023,581
$ 133,555,718
$
$
Liabilities and Net Assets Liabilities Line of credit Accounts payable Accrued expenses Deferred revenue Deposits held for others Notes and bonds payable Annuities payable Interest rate swap agreements Asset retirement obligation Federal contribution to loan program Total liabilities Net Assets Unrestricted Unrestricted - non-controlling interest Total unrestricted Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets
See Notes to Consolidated Financial Statements
7,000,000 4,637,267 5,892,707 6,946,106 251,193 41,663,441 13,092 3,533,722 741,197 1,707,807
3,171,581 3,495,479 3,762,852 6,679,272 248,769 47,011,833 17,225 3,744,203 723,226 1,698,107
72,386,532
70,552,547
17,105,871 17,105,871
13,711,239 (877,113) 12,834,126
17,478,795 32,052,383
18,965,610 31,203,435
66,637,049
63,003,171
$ 139,023,581
$ 133,555,718
3
Rockhurst University Consolidated Statements of Activities Years Ended June 30, 2014 and 2013
Unrestricted Revenues, Gains and Other Support Student tuition and fees, gross Less institutional financial aid Student tuition and fees, net Cumulative investment return designated for current operations Grants and contracts Private gifts, net Auxiliary enterprises Other Change in donor restriction Net assets released from restrictions
$
62,591,283 29,099,870 33,491,413
2014 Temporarily Permanently Restricted Restricted $
-
$
Total
Unrestricted
-
$ 62,591,283 29,099,870 33,491,413
$
57,375,367 25,251,963 32,123,404
2013 Temporarily Permanently Restricted Restricted $
-
$
-
Total $
57,375,367 25,251,963 32,123,404
1,962,000 541,462 1,856,277 8,632,910 1,379,453 (5,900) 6,357,159 54,214,774 35,692,479
3,126,715 (60,485) (6,357,159) (3,290,929) -
712,941 66,385 779,326 -
1,962,000 541,462 5,695,933 8,632,910 1,379,453 51,703,171 35,692,479
2,047,000 520,644 4,449,444 7,575,645 1,577,175 2,415,090 50,708,402 37,271,016
4,933,176 (2,415,090) 2,518,086 -
504,623 504,623 -
2,047,000 520,644 9,887,243 7,575,645 1,577,175 53,731,111 37,271,016
89,907,253
(3,290,929)
779,326
87,395,650
87,979,418
2,518,086
504,623
91,002,127
16,107,185 10,061,415 475,809 2,333,738 5,419,765 5,774,757 9,711,426
-
-
16,107,185 10,061,415 475,809 2,333,738 5,419,765 5,774,757 9,711,426
15,730,468 10,125,026 272,470 2,455,745 6,872,736 6,039,932 9,062,905
-
-
15,730,468 10,125,026 272,470 2,455,745 6,872,736 6,039,932 9,062,905
-
-
-
-
-
14,150
7,441
21,591
49,884,095
-
-
49,884,095
50,559,282
14,150
7,441
50,580,873
9,939,844 14,698,026 11,360,578
-
-
9,939,844 14,698,026 11,360,578
9,867,430 15,316,748 12,227,636
-
-
9,867,430 15,316,748 12,227,636
Total Seminar related
35,998,448
-
-
35,998,448
37,411,814
-
-
37,411,814
Total expenses and losses
85,882,543
-
-
85,882,543
87,971,096
14,150
7,441
87,992,687
Seminar related activities Total revenues, gains and other support Expenses and Losses University related Instructional Institutional support Sponsored programs Student aid Academic support Student services Auxiliary enterprises Provision for uncollectible contributions receivable Total University related Seminar related activities Direct advertising Cost of revenues Administrative and operating
4 See Notes to Consolidated Financial Statements
Rockhurst University Consolidated Statements of Activities (Continued) Years Ended June 30, 2014 and 2013
Unrestricted
2014 Temporarily Permanently Restricted Restricted
$
4,024,710
$ (3,290,929)
Investment Return net of Amounts Designated for Current Operations
336,554
1,804,114
69,622
2,210,290
845,496
1,183,590
19,170
2,048,256
Unrealized Gain on Interest Rate Swap Agreements
210,481
-
-
210,481
1,691,554
-
-
1,691,554
Change in Net Assets Before Non-Controlling Interest in RUCEC
4,571,745
(1,486,815)
848,948
3,933,878
2,545,372
3,687,526
516,352
6,749,250
Purchase of Non-Controlling Interest in RUCEC
(300,000)
-
-
(300,000)
-
-
-
-
Change in Net Assets
4,271,745
(1,486,815)
848,948
3,633,878
2,545,372
3,687,526
516,352
6,749,250
12,834,126
18,965,610
31,203,435
63,003,171
10,288,754
15,278,084
30,687,083
56,253,921
17,105,871
$ 17,478,795
32,052,383
$ 66,637,049
12,834,126
$ 18,965,610
Change in Net Assets From Operations
Net Assets, Beginning of Year Net Assets, End of Year
5 See Notes to Consolidated Financial Statements
$
$
$
779,326
Total $
1,513,107
Unrestricted $
$
8,322
2013 Temporarily Permanently Restricted Restricted $
2,503,936
$
$
497,182
31,203,435
Total $
$
3,009,440
63,003,171
Rockhurst University Consolidated Statements of Cash Flows Years Ended June 30, 2014 and 2013
2014 Operating Activities Change in net assets Items not requiring (providing) operating activities cash flows Depreciation and amortization Net realized and unrealized gains on investments Loss on disposal of property and equipment Change in contributions receivable discount Change in fair value of interest rate swap agreements Contributions received restricted for long-term investment or acquisition of long-lived assets Other Purchase of non-controlling interest in RUCEC Changes in Accounts receivable Inventories Prepaid expenses Accounts payable and accrued expenses Deferred revenue Deposits held for others Annuities payable Other assets and liabilities Net cash provided by (used in) operating activities Investing Activities Purchase of non-controlling interest in RUCEC Purchase of property and equipment Proceeds from disposal of property and equipment Purchase of investments Proceeds from disposition of investments Advances made on notes receivable Principal payments received on notes receivable Restricted cash and cash equivalents Net cash used in investing activities Financing Activities Outstanding checks in excess of bank balances Proceeds from contributions and pledges restricted for long-term investment or acquisition of long-lived assets Net borrowings (repayments) on line of credit Proceeds from issuance of notes and bonds payable Principal payments on notes and bonds payable Net cash provided by (used in) financing activities
See Notes to Consolidated Financial Statements
$
3,633,878
2013 $
6,749,250
2,938,956 (3,275,834) (431,631) (210,481)
2,923,596 (3,285,863) 923 64,073 (1,691,554)
(3,444,547) 300,000
(3,265,525) (186,060) -
396,891 61,852 (471,883) (17,651) 266,834 2,424 (4,133) (63,596)
(221,377) 112,809 (45,432) 851,249 (104,524) 57,561 (4,520) (17,494)
(318,921)
1,937,112
(300,000) (2,667,033) (8,975,199) 6,940,552 (285,275) 280,558 (899,753)
(3,499,879) 51,962 (13,722,598) 15,571,255 (343,199) 339,954 1,126,542
(5,906,150)
(475,963)
(531,792)
-
8,126,176 3,828,419 (5,348,392)
1,231,744 (664,958) 4,000,000 (6,116,293)
6,074,411
(1,549,507)
6
Rockhurst University Consolidated Statements of Cash Flows (Continued) Years Ended June 30, 2014 and 2013
2014 Change in Cash and Cash Equivalents
$
Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year Supplemental Cash Flows Information Interest paid Tennant improvement allowance Food service improvement allowance Gifts of investments Accounts payable incurred for property and equipment purchases
See Notes to Consolidated Financial Statements
(150,660)
2013 $
2,829,741
(88,358) 2,918,099
$
2,679,081
$
2,829,741
$
2,722,007 1,348,750 2,657,589
$
3,064,115 105,980 299,379 185,253
7
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Note 1:
Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations Rockhurst University is a private, Catholic, Jesuit comprehensive university, which offers baccalaureate and masters 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. Rockhurst University Continuing Education Center, Inc. (“RUCEC”), a wholly-owned subsidiary of the University, designs, markets and presents business skills training seminars throughout the United States and in Canada. Basis of Presentation The accompanying consolidated financial statements include the accounts of Rockhurst University and its wholly-owned subsidiary RUCEC (collectively referred to as the “University”). Prior to June 23, 2014, RUCEC was a 52% majority owned subsidiary of the University. On June 23, 2014, the University purchased all of the remaining outstanding shares of RUCEC for $300,000, making RUCEC a wholly-owned subsidiary. All significant interorganization balances and transactions have been eliminated in consolidation. 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, 2014 and 2013, cash equivalents consisted primarily of money market accounts with brokers and certificates of deposit. At June 30, 2014, the University’s cash accounts exceeded federally insured limits by approximately $265,000. 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 8
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
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 consolidated statements of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. The 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 amount 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 thirdparty collection agencies are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the student. RUCEC accounts receivable are stated at the amount billed to customers. RUCEC provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Accounts past due more than 120 days are considered delinquent. Delinquent accounts are written off based on individual credit evaluation and specific circumstances of the customers. 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 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 years 15 years 3 – 30 years 5 years
9
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
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 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. No asset impairment was recognized during the years ended June 30, 2014 and 2013. 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. 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. Inventory Pricing Inventories consist of books, tapes and other training products. Inventories are stated at the lower of cost or market. Costs are determined using the first-in, first-out (FIFO) method. 10
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Prepaid Expenses Prepaid expenses consist of costs incurred for postage, printing and advertising for seminars that will be held subsequent to the fiscal year end. These costs are expensed upon the occurrence of the related seminar, which is generally within three months of the incurrence of the costs. Prepaid advertising amounted to approximately $2,215,000 and $1,882,000 at June 30, 2014 and 2013, respectively. 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. Seminar Revenue Recognition Revenue from seminars is recorded at the time the seminar is presented, except for those customers who purchase RUCEC’s twelve-month membership. In these cases, the sales are recorded as deferred revenue and amortized over twelve months at a rate according to historical customer usage patterns. Seminar fees received in advance are recorded as deferred revenue at the time the fees are collected. Related expenses for cost of revenues and seminar advertising are recognized at the time of the seminar in order to match expenses with the associated revenues. Income Taxes The University is exempt from income taxes under Section 501 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 2011. 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. Taxes Collected from Customers and Remitted to Governmental Authorities Taxes collected from customers and remitted to governmental authorities by RUCEC are presented in the accompanying consolidated financial statements on a net basis.
11
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
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 $1,543,000 and $1,518,000 for the years ended June 30, 2014 and 2013, respectively. Transfers Between Fair Value Hierarchy Levels Transfers in and out of Level 1 (quoted market prices) and Level 2 (other significant observable inputs) are recognized on the period ending date. There were no transfers at June 30, 2014 and 2013. Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor’s Report, which is the date the financial statements were available to be issued.
12
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Note 2:
Controlling and Non-controlling Interest
The following depicts the changes in consolidated net assets attributable to the controlling financial interest of the University and the non-controlling interests of RUCEC:
Unrestricted net assets, June 30, 2012
Total
Controlling Interest
NonControlling Interest
$10,288,754
$ 11,098,282
$ (809,528)
8,322
75,907
(67,585)
Change in net assets from operations Investment gain net of amounts designated for current operations Unrealized gain on interest rate swap agreements
845,496
845,496
-
1,691,554
1,691,554
-
Change in unrestricted net assets
2,545,372
2,612,957
(67,585)
12,834,126
13,711,239
(877,113)
4,024,710
4,171,575
(146,865)
336,554
336,554
-
210,481
210,481
-
4,571,745
4,718,610
(146,865)
(1,323,978)
1,023,978
4,271,745
3,394,632
877,113
$17,105,871
$ 17,105,871
Unrestricted net assets, June 30, 2013 Change in net assets from operations Investment gain net of amounts designated for current operations Unrealized gain on interest rate swap agreements Change in unrestricted net assets before purchase of non-controlling interest in RUCEC Purchase of non-controlling interest in RUCEC Change in unrestricted net assets Unrestricted net assets, June 30, 2014
(300,000)
$
-
13
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Note 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, 2014 and 2013. These advances are ultimately refundable to the federal government and are classified as liabilities in the consolidated 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, 2014 and 2013. 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 Federal Perkins Loan program were $2,401,051 and $2,396,334 as of June 30, 2014 and 2013, 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, 2014 and 2013:
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
2014
2013
$ 1,205,785 606,252 205,734 77,550 110,720 206,210
$ 1,281,576 573,340 175,271 80,645 118,138 178,564
2,412,251 11,200
2,407,534 11,200
$ 2,401,051
$ 2,396,334
14
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Note 4:
Investments
Investments at June 30, 2014 and 2013 consisted of the following:
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
Investments at historical cost Real estate Other Total investments
2014
2013
$ 14,547,267 205,022 9,323,156 2,665,212 11,238,244 1,273,513 1,226,715 1,756,237
$ 9,481,260 204,130 8,658,943 2,882,416 11,534,967 1,415,344 1,164,322 1,629,075
42,235,366
36,970,457
2,144,085 514,072
2,140,769 471,816
$ 44,893,523
$ 39,583,042
The University has significant investments in marketable securities which are subject to price fluctuation. This risk is controlled through a diversified portfolio and regular monitoring procedures. As stated in Note 11, the Board of Trustees appropriates a certain amount of net cumulative appreciation in the investment portfolio for use in operations each year. The amount appropriated was $1,962,000 and $2,047,000 for the years ended June 30, 2014 and 2013, respectively.
15
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
The following schedule summarizes the investment return and its classification in the consolidated statements of activities:
2014 Interest and dividend income
$
896,456
2013 $
809,393
Unrealized gains Realized gains
1,506,763 1,769,071
2,503,058 782,805
Net realized and unrealized gains
3,275,834
3,285,863
$ 4,172,290
$ 4,095,256
$ 1,962,000
$ 2,047,000
2,210,290
2,048,256
$ 4,172,290
$ 4,095,256
Total investment return Cumulative investment return designated for current operations (see Note 11) Investment return net of amounts designated for current operations Total investment return
Note 5:
Contributions Receivable
Contributions receivable at June 30, 2014 and 2013 consisted of the following:
Due within one year Due in one to five years Due in more than five years Less Allowance for uncollectible contributions Unamortized discount
2014
2013
$ 3,846,566 1,732,277 930,000 6,508,843
$ 3,540,086 7,635,386 40,000 11,215,472
100,000 523,903
125,000 955,534
$ 5,884,940
$ 10,134,938
Approximately 53% and 65% of the gross outstanding contributions receivable as of June 30, 2014 and 2013, respectively, were due from related parties or affiliated entities. One donor made up approximately 46% and 53%, respectively, of the total gross contributions receivable at June 30, 2014 and 2013. The discount rate utilized was 5% for 2014 and 2013. 16
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Note 6:
Property and Equipment
Property and equipment at June 30, 2014 and 2013 consists of:
Land Buildings and leasehold improvements Equipment, furniture and fixtures Construction in progress Less accumulated depreciation and amortization
2014
2013
$ 5,060,395 80,235,019 33,784,597 6,944,661 126,024,672 52,210,957
$ 5,014,367 80,243,400 32,817,237 1,683,107 119,758,111 49,537,064
$ 73,813,715
$ 70,221,047
Depreciation expense for the years ended June 30, 2014 and 2013 was $2,895,451 and $2,880,091, respectively.
Note 7:
Line of Credit
The University had a $4,000,000 revolving bank line of credit that expired on June 21, 2013. On June 14, 2013, the University entered into a credit agreement with another bank, providing a $4,000,000 revolving line of credit expiring June 14, 2014. As of June 30, 2013, there was $3,171,581 borrowed against this line. On August 28, 2013, certain modifications were made to the credit agreement, increasing the revolving bank line of credit from $4,000,000 to $8,000,000. On June 10, 2014, additional modifications were made to the credit agreement, extending the maturity date to June 14, 2015. As of June 30, 2014, there was $7,000,000 borrowed against this line. 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 2.5%, which was 2.65% on June 30, 2014 and is payable monthly. On December 9, 2013, certain modifications were made to the credit agreement, including waivers for the debt service coverage ratio violations as of June 30, 2013 and September 30, 2013. These modifications also included a reduction of the debt service coverage ratio requirements for the quarters ending December 31, 2013 and March 31, 2014. Management has determined the University was in compliance with required financial covenants as of June 30, 2014.
17
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Note 8:
Notes and Bonds Payable 2014
Short-term Health and educational facilities revenue anticipation note - 2013 (A) Long-term Educational Facilities Refunding Revenue Bonds – 2011 Series A (B) Variable Rate Demand Bonds Educational Facilities Refunding Revenue Bonds – 2011 Series B (C) American Recovery and Reinvestment Act of 2009; State Energy Program Loan (D) Other
$
2013
-
$ 4,000,000
20,028,750
20,538,750
20,570,000
21,345,000
1,064,691 41,663,441
1,126,000 2,083 43,011,833
$ 41,663,441
$ 47,011,833
(A)
The University had a $4,000,000 short-term revenue anticipation note that was payable to a debt service account at the trustee’s financial institution in three payments of one-third the amount outstanding; payable on February 15, March and April 15, 2014. Outstanding principal and interest were due on April 25, 2014. Interest was payable at 3%. The note was unsecured.
(B)
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 3.0% 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.
(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. 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 18
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
“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%. (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%.
The Educational Facilities Refunding Revenue Bonds noted above at items (B) and (C) require the University to maintain certain financial covenants. As of June 30, 2013, the University was in violation of certain financial covenants relating to the Bonds noted in item (B). This violation did not constitute an event of default under the loan agreements as of June 30, 2013 because the University had increased frequency of debt service payments and had obtained a consultant’s report with recommendations regarding rates, fees, charges and operations as required due to violation of certain financial covenants as of June 30, 2012. As of June 30, 2014, Management has determined the University was in compliance with the required financial covenants. The outstanding bonds noted in item (C) requires the University to maintain certain financial covenants, including a quarterly debt service coverage ratio. As of June 30, 2013 and September 30, 2013, the University was in violation of these debt service coverage ratio requirements. On December 9, 2013, certain modifications were made to the bond agreement, including waivers for the debt service coverage ratio violations as of June 30, 2013 and September 30, 2013. These modifications also included a reduction of the debt service coverage ratio requirements for the quarters ending December 31, 2013 and March 31, 2014. As of June 30, 2014, management determined the University was in compliance with the required financial covenants. Interest expense totaled $2,720,022 and $2,739,273 for the years ended June 30, 2014 and 2013, respectively.
19
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Aggregate annual maturities of long-term debt at June 30, 2014, that include both the scheduled contractual maturities of the variable rate demand bonds and payments that could be required under the loan included in the letter of credit agreement as described above are as follows:
2015 2016 2017 2018 2019 Thereafter
Note 9:
Scheduled Contractual Maturities
Maturities Including Letter-ofCredit Expiration
$ 1,458,031 1,525,202 1,596,167 1,677,177 1,759,482 33,647,382
$ 1,458,031 1,525,202 19,571,167 717,177 749,452 17,642,382
$ 41,663,441
$ 41,663,411
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). This agreement expires 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. On August 28, 2013, certain modifications were made to this agreement, including a requirement that the University fully cash collateralize the maximum obligation of the counterparty in a deposit account held by the counterparty which amounted to $900,000 upon the execution of this agreement. 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 consolidated statements of activities. For the years ended June 30, 2014 and 2013, an unrealized gain of $210,481 and $1,691,554, 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 $3,533,722 and $3,744,203 as of June 30, 2014 and 2013, respectively, and is recorded as interest rate swap agreements on the accompanying consolidated statements of financial position. 20
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Note 10: Net Assets Temporarily Restricted Net Assets Temporarily restricted net assets at June 30, 2014 and 2013 are available for the following purposes or periods:
2014 Scholarships Assets under irrevocable trust Property and equipment Donor restricted endowment earnings (see Note 11 ) Contributions receivable Other
$
874,379 641,570 4,702,393 6,970,409 3,930,390 359,654
$ 17,478,795
2013 $
849,837 584,030 5,390,682 5,223,829 6,625,192 292,040
$ 18,965,610
Permanently Restricted Net Assets Permanently restricted net assets are restricted for investment in perpetuity, the income from which is generally expendable for student scholarships (see Note 11). 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, 2014 and 2013 are as follows:
2014 Expenditures for capital projects Scholarships Satisfaction of purpose restrictions
2013
$ 3,149,129 163,346 3,044,684
$
813,014 181,746 1,420,330
$ 6,357,159
$ 2,415,090
21
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Note 11: Endowment Interpretation of State Law The University’s endowment consists of approximately 220 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 is 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. 2. 3. 4. 5.
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 6. Other resources of the University 7. Investment policies of the University The composition of net assets by type of endowment fund at June 30, 2014 and 2013 was:
2014 Temporarily Restricted
Permanently Restricted
Total
$
(459,645) $ 6,970,409
$ 30,719,113
$37,229,877
$
(459,645) $ 6,970,409
$ 30,719,113
$37,229,877
Unrestricted
Donor-restricted endowment funds Total endowment funds subject to SPMIFA
22
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
2013 Temporarily Restricted
Permanently Restricted
Total
$ (1,223,630) $ 5,223,829
$ 29,917,812
$33,918,011
$ (1,223,630) $ 5,223,829
$ 29,917,812
$33,918,011
Unrestricted
Donor-restricted endowment funds Total endowment funds subject to SPMIFA
Changes in endowment net assets, subject to SPMIFA, for the years ended June 30, 2014 and 2013, were:
2014 Temporarily Restricted
Permanently Restricted
Total
$ (1,223,630) $ 5,223,829
$ 29,917,812
$33,918,011
Unrestricted
Endowment net assets, beginning of year Investment return Investment income Net appreciation Total investment return Contributions and collections on pledges Appropriation of endowment assets for expenditure (donor restricted) Endowment net assets, end of year, subject to SPMIFA
763,985 763,985
825,110 2,883,470 3,708,580
-
825,110 3,647,455 4,472,565
-
-
801,301
801,301
(1,962,000)
-
(1,962,000)
$ (459,645) $ 6,970,409
$ 30,719,113
$37,229,877
-
23
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
2013 Temporarily Restricted
Permanently Restricted
Total
$ (2,208,247) $ 4,060,998
$ 29,310,093
$31,162,844
Unrestricted
Endowment net assets, beginning of year Investment return Investment income Net appreciation Total investment return
984,617 984,617
740,634 2,469,197 3,209,831
-
740,634 3,453,814 4,194,448
-
-
607,719
607,719
(2,047,000)
-
(2,047,000)
$ (1,223,630) $ 5,223,829
$ 29,917,812
$33,918,011
Contributions and collections on pledges Appropriation of endowment assets for expenditure (donor restricted) Endowment net assets, end of year, subject to SPMIFA
-
Permanently restricted net assets on the consolidated statements of financial position at June 30, 2014 and 2013 consist of the following:
2014
2013
Endowment net assets, subject to SPMIFA (see previous tables) Beneficial interest in irrevocable trust Contributions receivable
$ 30,719,113 1,114,663 218,607
$ 29,917,812 1,045,045 240,578
Permanently restricted net assets
$ 32,052,383
$ 31,203,435
The University’s endowment fund (University Investment Portfolio), as defined by the University, at June 30, 2014 and 2013 consisted of the following:
Investments in marketable securities Assets under irrevocable trusts Real estate investments Total endowment funds, as defined by University
2014
2013
$ 40,479,123 1,756,243 2,144,085
$ 35,341,376 1,629,081 2,140,769
$ 44,379,451
$ 39,111,226
24
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Included in the total endowment funds presented above are assets included in irrevocable trusts held by other third parties. Those assets are not subject to the University’s investment or spending policies. From time to time, the fair value of assets associated with individual donor-restricted 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 aggregated $459,645 and $1,223,630 at June 30, 2014 and 2013, 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 2014 and 2013, such percentage was 7%, and the allocation totaled $1,962,000 and $2,047,000, 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.
25
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Note 12: Operating Leases Noncancelable operating leases expire in various years through 2017. These leases generally contain renewal options for periods ranging from one to five years. Future minimum lease payments at June 30, 2014, were:
2015 2016 2017
$
600,978 572,632 572,632
$ 1,746,242 Rental expense for all operating leases was $724,873 and $713,314 for the years ended June 30, 2014 and 2013, respectively.
Note 13: 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. RUCEC has a defined contribution retirement savings plan covering substantially all of its employees. The RUCEC plan allows employee contributions and an RUCEC matching contribution. Total consolidated contributions to the plans were approximately $1,091,000 and $1,028,000 for 2014 and 2013, respectively.
Note 14: Self-Funded Health and Dental Plan The University maintains a self-funded health and dental insurance plan for its employees. The Plan provides certain medical, hospitalization and dental 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 $100,000 up to an individual life time limit of $5,000,000. 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 2014 and 2013 totaled $1,626,838 and $2,082,000, respectively. Accrued liabilities include an estimate of the University’s liability for claims incurred but not paid through June 30, 2014 and 2013 of approximately $178,000 and $256,000, respectively.
26
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Note 15: 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
27
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Recurring Measurements The following tables present the fair value measurements of assets and liabilities recognized in the accompanying consolidated statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2014 and 2013: 2014
Investments 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 Total investments Restricted cash and cash equivalents at fair value Money market U.S. Treasury securities
Fair Value
Quoted Prices in Active Markets for Identical Assets (Level 1)
$ 14,547,267 205,022 9,323,156 2,665,212 11,238,244 1,273,513 1,226,715 1,756,237
$ 14,547,267 205,022 9,323,156 2,665,212 11,238,244 -
$
1,273,513 1,226,715 1,756,237
$
-
$ 42,235,366
$ 37,978,901
$
4,256,465
$
-
$
1,151,132 1,479,407
$
1,151,132 1,479,407
$
-
$
2,630,539
$
2,630,539
$
$ (3,533,722) $
-
$ Interest rate swap agreements
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
-
-
$
-
$ (3,533,722) $
-
28
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
2013
Fair Value Investments Cash, money market and other funds Marketable CDs Domestic equity securities All industries Foreign equity securities Mutual funds Mortgage-backed securities Corporate debt securities Assets under irrevocable trust
$
9,481,260 204,130
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
$
$
$
9,481,260 204,130
-
-
8,658,943 2,882,416 11,534,967 1,415,344 1,164,322 1,629,075
8,658,943 2,882,416 11,534,967 -
$ 36,970,457
$ 32,761,716
$
4,208,741
$
-
Restricted cash and cash equivalents at fair value Money market
$
1,730,786
$
1,730,786
$
-
$
-
Interest rate swap agreements
$
(3,744,203) $
-
$ (3,744,203)
$
-
Total investments
1,415,344 1,164,322 1,629,075
-
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 consolidated statements of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, 2014. 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. There were no Level 3 investments at June 30, 2014 and 2013.
29
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
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. 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. Annuities Payable Fair values of the annuity obligations are based on an actuarial evaluation of the estimated annuity or other payments under such obligations.
Note 16: Asset Retirement Obligation Accounting standards require that an asset retirement obligation (ARO) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred or becomes determinable (as defined by the standard) even when the timing and/or method of settlement may be conditional on a future event. The 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.
30
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
A summary of changes in asset retirement obligations is included in the table below:
2014
2013
Liability, beginning of year Liabilities settled Accretion expense
$
723,226 (22,934) 40,905
$
784,219 (101,674) 40,681
Liability, end of year
$
741,197
$
723,226
Note 17: Department of Education As of June 30, 2012, management had determined that the University failed to meet the U.S. Department of Education’s (DOE) financial responsibility ratio requirements. As a result, the University was allowed to continue to participate in the Federal Student Financial Aid programs under the Zone Alternative provided by the DOE. When operating under the Zone Alternative, the University is required to notify the DOE of certain significant financial events. As discussed in Note 8, the University was in violation of certain financial covenants for the year ended June 30, 2013. As a result of this violation, the University’s management notified the DOE subsequent to June 30, 2013. On May 30, 2014, the DOE sent a final audit determination letter to the University noting that the University had met the financial responsibility ratio requirements as of June 30, 2013, and was no longer subject to the Zone Alternative. Management has calculated the DOE financial responsibility ratios at June 30, 2014 and believes the University is in compliance with the DOE’s financial responsibility requirements.
Note 18: 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.
31
Rockhurst University Notes to Consolidated Financial Statements June 30, 2014 and 2013
Accounts Receivable and Contributions Receivable Allowances Management believes that outstanding accounts receivable and contributions receivable allowances are reasonable as of June 30, 2014. The estimate could change in future periods due to unforeseen events and circumstances. Prepaid Expenses As discussed in Note 1, prepaid expenses consist of costs incurred for promoting seminars, primarily postage, printing and advertising for seminars that will be held subsequent to the fiscal year-end. These costs are included in prepaid expenses as they have been paid or accrued for by RUCEC and management believes these costs will provide for future benefits for RUCEC in the form of revenue. However, it is possible that these costs could become impaired if sufficient levels of revenue are not generated from these associated costs. Management does not currently believe there is any such impairment on these prepaid expenses in the accompanying consolidated financial statements. Asset Retirement Obligation As discussed in Note 16, 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 consolidated statements of financial position.
32
