concordia university chicago - consolidated financial … · 2018-11-05 · concordia university...

CONCORDIA UNIVERSITY CHICAGO

CONSOLIDATED FINANCIAL STATEMENTS AND

INDEPENDENT AUDITOR’S REPORT

For the Year Ended June 30, 2018

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TABLE OF CONTENTS

Page(s)

INDEPENDENT AUDITOR’S REPORT ........................................................................ 3-4

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Financial Position ............................................................. 5

Consolidated Statement of Activities ........................................................................... 6

Consolidated Statement of Cash Flows ....................................................................... 7-8

Notes to Consolidated Financial Statements ................................................................ 9-38

SUPPLEMENTARY INFORMATION

Consolidating Statement of Financial Position ............................................................ 39

Consolidating Statement of Activities - Unrestricted .................................................. 40

Consolidating Statement of Activities - Temporarily Restricted ................................. 41

Consolidating Statement of Activities - Permanently Restricted ................................. 42

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1415 West Diehl Road, Suite 400

Naperville, IL 60563

630.566.8400

INDEPENDENT AUDITOR’S REPORT

To the Board of Regents

Concordia University Chicago

River Forest, Illinois

Report on Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Concordia University

Chicago (the University), which comprise the consolidated statement of financial position as of

June 30, 2018, and the related consolidated statements of activities and cash flows for the year

then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these 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 these consolidated financial statements based on

our audit. We conducted our audit 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 entity’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 entity’s internal control. Accordingly, we express no such opinion. An audit

also includes evaluating the appropriateness of accounting policies used and the reasonableness

of significant accounting estimates made by management, as well as evaluating the overall

presentation of the consolidated financial statements.

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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 consolidated financial statements referred to above present fairly, in all

material respects, the financial position of Concordia University Chicago as of June 30, 2018,

and the changes in its consolidated net assets and its consolidated cash flows for the year then

ended in accordance with accounting principles generally accepted in the United States of

America.

Supplementary Information

Our audit was conducted for the purpose of forming an opinion on the consolidated financial

statements as a whole. The accompanying consolidating statement of financial position,

consolidating statement of activities - unrestricted, consolidating statement of activities -

temporarily restricted, and consolidating statement of activities - permanently restricted are

presented for purposes of additional analysis and are not a required part of the consolidated

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

consolidated financial statements. The information has been subjected to the auditing procedures

applied in the audit of the consolidated financial statements and certain additional procedures,

including comparing and reconciling such information directly to the underlying accounting and

other records used to prepare the consolidated financial statements or to the consolidated

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 consolidated financial statements as a

whole.

Naperville, Illinois

October 19, 2018

CONSOLIDATED FINANCIAL STATEMENTS

Cash and cash equivalents 207,193$

Investments 11,688,747

Accounts receivable - net 6,196,725

Prepaid expenses and other assets 5,426,810

Grants receivable 27,585

Contributions receivable - net 738,175

Loans receivable - net 309,350

Interest rate swap agreement 15,530

Assets restricted as to use 600,000

Charitable remainder and lead trusts 1,504,364

Investments restricted to endowment 14,289,752

Land, buildings, and equipment - net 63,128,149

TOTAL ASSETS 104,132,380$

LIABILITIES

Accounts payable and other liabilities 9,452,624$

Accrued payroll and other related liabilities 1,783,835

Deferred revenues 6,080,408

Refundable government student loan funds 351,926

Obligation under capital lease 105,113

Loans payable - net 33,149,143

Bonds payable - net 13,600,000

Total liabilities 64,523,049

NET ASSETS

Unrestricted 1,331,846

Temporarily restricted 24,564,910

Permanently restricted 13,712,575

Total net assets 39,609,331

TOTAL LIABILITIES AND NET ASSETS 104,132,380$


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

June 30, 2018

ASSETS

LIABILITIES AND NET ASSETS

- 5 -See accompanying notes to consolidated financial statements.

Budgeted Endowment Temporarily Permanently

Activities Related Total Restricted Restricted Total

OPERATING REVENUES AND GAINS

Tuition and fees 79,572,601$ -$ 79,572,601$ -$ -$ 79,572,601$

Less scholarship and fellowships (18,895,868) - (18,895,868) - - (18,895,868)

Net tuition and fees 60,676,733 - 60,676,733 - - 60,676,733

Government grants and contracts - - - 527,513 - 527,513

Private gifts and grants 997,535 1,980 999,515 2,427,749 - 3,427,264

Pooled investments endowment payout 547,049 - 547,049 492,654 - 1,039,703

Nonpooled investments return (9,652) - (9,652) - - (9,652)

Auxiliary services 6,647,083 - 6,647,083 - - 6,647,083

Other 2,059,478 - 2,059,478 11,565 - 2,071,043

Net assets released from restrictions 3,116,495 3,116,495 (3,116,495) - -

Total operating revenues and gains 74,034,721 1,980 74,036,701 342,986 - 74,379,687

OPERATING EXPENSES

Academic programs

Instruction - divisional 26,307,678 - 26,307,678 - - 26,307,678

Other instructional programs 2,435,959 - 2,435,959 - - 2,435,959

Academic support 5,934,442 - 5,934,442 - - 5,934,442

Student services 22,879,088 - 22,879,088 - - 22,879,088

Auxiliary enterprises 6,192,188 - 6,192,188 - - 6,192,188

Total program expenses 63,749,355 - 63,749,355 - - 63,749,355

Management and general 8,594,492 - 8,594,492 - - 8,594,492

Fundraising 1,638,780 - 1,638,780 - - 1,638,780

Total operating expenses 73,982,627 - 73,982,627 - - 73,982,627

Operating revenues and gains in excess of

operating expenses 52,094$ 1,980$ 54,074 342,986 - 397,060

NON-OPERATING ACTIVITIES

Private gifts and grants - - 460,039 460,039

Net change in funds held in trust - 54,174 - 54,174

Net change in charitable lead and remainder trusts - 16,158 (53,942) (37,784)

Other gains (losses) (62,643) 18,297 11,211 (33,135)

Unrealized gain on interest rate swap agreement 34,424 - - 34,424

Disposal of land, buildings, and equipment (49,317) - - (49,317)

Pooled endowment investment return

in excess of endowment payout 143,357 275,488 - 418,845

Net assets released from restrictions 102,414 - (102,414) -

CHANGE IN NET ASSETS 222,309 707,103 314,894 1,244,306

NET ASSETS, BEGINNING OF YEAR 1,109,537 23,857,807 13,397,681 38,365,025

NET ASSETS, END OF YEAR 1,331,846$ 24,564,910$ 13,712,575$ 39,609,331$

Unrestricted


CONSOLIDATED STATEMENT OF ACTIVITIES



CASH FLOWS FROM OPERATING ACTIVITIES

Change in net assets 1,244,306$

Adjustments to reconcile change in net assets to net

cash from operating activities

Depreciation expense 3,124,997

Amortization expense 331,521

Bad debt expense 245,857

Loans receivable cancellations and adjustments - net 1,868

Unrealized gain on interest rate swap agreement (34,424)

Net realized and unrealized gains on pooled

(705,242)

Net realized and unrealized gains included in

non pooled endowment investments return (44,522)

Contributions and change in value of charitable remainder and lead trusts (207,329)

Contributions restricted for long-term investment (575,762)

Contributions restricted for land, buildings, and equipment (4,777,137)

(Increase) decrease in

Accounts receivable 1,807,199

Prepaid expenses and other assets - net of amortization (2,010,176)

Grants receivable 11,246

Contributions receivable (111,959)

Increase (decrease) in

Accounts payable and other liabilities (1,054,993)

Accrued payroll and other related liabilities 82,220

Deferred revenues 748,256

Refundable government student loan funds (40,621)

Net cash from operating activities (1,964,695)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of fixed assets (10,276,979)

Proceeds from sales of long-term investments 1,917,420

Purchases of long-term investments (2,961,553)

Endowment payout in excess of dividends and interest 289,601

Loans receivable

Principal repayments 69,954

Advances (14,000)

Net cash from investing activities (10,975,557)


CONSOLIDATED STATEMENT OF CASH FLOWS


endowment investments not used in endowment payout

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CASH FLOWS FROM FINANCING ACTIVITIES

Contributions restricted for long-term investment 622,211$

Contributions restricted for land, buildings, and equipment 6,340,874

Net payments on Lutheran Church-Missouri Synod loan (335,068)

Payments on capital lease obligation (101,192)

Proceeds from issuance of 2016 LCEF Construction Loan 2,258,471

Proceeds from issuance of 2016 Huntington Construction Loan 2,331,356

Proceeds from issuance of 2018 Busey Bank Loan 12,710,971

Principal payments on 2013 Lutheran Church Extension Fund loan (344,183)

Principal Payment on 2016 Huntington Construction Loan (6,415,896)

Principal payments on 2014 Huntington Bank Loan (3,885,669)

Principal payments 2013 IFA Bonds (791,458)

Net cash from financing activities 12,390,417

NET DECREASE IN CASH AND CASH EQUIVALENTS (549,835)$

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 757,028

CASH AND CASH EQUIVALENTS, END OF YEAR 207,193$

SUPPLEMENTAL DATA

Interest paid 1,418,328$

Purchase of fixed assets included in accounts payable 1,223,322

Pledge payments on contributions restricted for long-term investment 46,449

Pledge payments on contributions restricted for for land, buildings, and equipment 1,563,737

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

1. NATURE OF ORGANIZATION

Concordia University, an Illinois not-for-profit corporation located in River Forest, Illinois

doing business as Concordia University Chicago, is a comprehensive private university

accredited by the Higher Learning Commission whose mission is based on liberal arts

education centered in the Gospel of Jesus Christ. It offers various bachelor’s degrees, masters

degrees, doctoral degrees (with Doctor of Education and Doctor of Philosophy

concentrations), and various certificate and licensure programs, as well as providing

education to young children through its early childhood program.

Concordia University is operated under the auspices of The Lutheran Church-Missouri

Synod (the Synod), a Missouri not-for-profit corporation headquartered in St. Louis,

Missouri. Concordia University Chicago’s Board of Regents, responsible for the

management of Concordia University Chicago, consists of 18 members (including eight

elected by its Board of Regents and four elected by the Synod).

Six not-for-profit corporate and trust entities operate as corporate-wide entities directly

under the auspices of the Synod:

• Lutheran Church Extension Fund (LCEF)

• Concordia Publishing House (CPH)

• The Lutheran Church-Missouri Synod Foundation (LCMS Foundation)

• Concordia Plan Services (CPS)

• Concordia Historical Institute

• Concordia University System (CUS)

CUS, a not-for-profit corporate entity, broadly oversees the activities of nine colleges and

universities and seminaries, including Concordia University Chicago, carrying out the

activities and policies of the Synod as it applies to the Synod higher education institutions.

The Concordia Administrative Information System (CAIS), a CUS department, oversees the

management of the software accounting system utilized by most of the Synod higher

education institutions.

Thirty-five Synodical districts, all separate entities operating under the auspices of the

Synod, represent the Synod to the various Synod congregations across the country and

around the world. The district in which Concordia University Chicago is located, the

Northern Illinois District (NID), elects five members of Concordia University Chicago’s

Board of Regents (including the NID president who serves ex officio as a voting member).


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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1. NATURE OF ORGANIZATION (Continued)

The majority of students enrolled at Concordia University Chicago receive funds through

federal financial aid and loan programs under Title IV of the Higher Education Act of 1965,

as amended, to pay for a substantial portion of their tuition. Concordia University Chicago

and its programs are subject to approval, licensure and/or regulatory requirements of various

accrediting authorities, state authorities, the United States Department of Education, and

other federal agencies.

Concordia University Foundation, Inc. (the Foundation) is a separate Illinois not-for-profit

corporation formed to promote Concordia University Chicago through solicitation of funds

to encourage various activities of Concordia University Chicago, to administer the

endowment assets of Concordia University Chicago, and to administer gifts and bequests

given to it by donors for purposes of supporting the educational and religious objectives of

Concordia University Chicago. Net assets of the Foundation which are not restricted by

donors are considered payable to Concordia University Chicago, and are therefore,

considered to be temporarily restricted net assets by the Foundation, although such net assets

are considered unrestricted net assets in the consolidated financial statements.

The Foundation is administered by a Board of Directors elected by its corporate member,

Concordia University Chicago.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The accompanying consolidated financial statements include the accounts of Concordia

University Chicago and the Foundation (collectively, the University). These statements have

been prepared on the accrual basis in conformity with accounting principles generally

accepted in the United States of America (USGAAP). All significant intercompany balances

and transactions have been eliminated in consolidation.

Basis of Presentation

The University follows the professional standards reporting requirements for the financial

statements of not-for-profit organizations. Accordingly, the University reports information

regarding its consolidated financial position and consolidated activities according to three

classes of net assets: unrestricted net assets, temporarily restricted net assets, and

permanently restricted net assets.

Unrestricted net assets include all net assets that are not subject to donor-imposed

restrictions.



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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis of Presentation (Continued)

Temporarily restricted net assets are limited by law or donor-imposed stipulations that

either expire by passage of time or can be fulfilled or removed by actions of the

University pursuant to those stipulations. When a donor restriction expires, that is,

when a stipulated time restriction ends or purpose restriction is accomplished,

temporarily restricted net assets are reclassified to unrestricted net assets and reported

in the consolidated statement of activities as net assets released from restrictions.

Permanently restricted net assets are limited by donor-imposed stipulations that

neither expire by the passage of time nor can be fulfilled or otherwise removed by

actions of the University. Income derived by these assets is either unrestricted or is

used to support the donor-specified activity.

To help ensure observance of limitations and restrictions placed on the use of resources

available to the University, management maintains the accounts of the University in

accordance with the principles of fund accounting. Separate accounts are maintained for

each fund; however, in the accompanying consolidated financial statements, funds that have

similar characteristics are combined and presented by net asset class.

Net assets are further segregated by management into the following subclasses:

Operating Funds - All temporarily restricted and unrestricted net assets are classified

as operating net assets except as designated below.

Endowment and Similar Funds - Certain board-designated (designated by the

Concordia University Chicago’s Board of Regents) unrestricted and temporarily

restricted net assets have been pooled with permanently restricted net assets for the

purpose of investing the total of such assets as a single endowment fund.

Net Investment in Plant - Unrestricted and temporarily restricted net assets that have

been utilized for the investment in land, buildings, and equipment, net of accumulated

depreciation and capital debt.

Funds Held in Trust - Certain net assets are held by a third party trustee and are not in

the control of the University.



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Basis of Presentation (Continued)

All revenues and expenses are considered operating revenues and expenses, with the

exception of the following:

• Permanently restricted contributions.

• All return on endowment investments in excess of (less than) the endowment

payout used to support operations.

• Gains or losses from the sale or disposition of land, buildings and equipment,

and art objects.

• Changes to amounts of funds held in trust.

• Unrealized gain or loss on the fair value of the interest rate swap agreement.

• Endowment and similar funds’ net assets meeting the requirements for the

release of net assets that are retained as endowment funds.

Unrestricted operating revenues and expenses are classified as either budgeted activities or

as endowment related.

Endowment related activities include the following:

Unrestricted Bequests - By policy adopted by the Board of Regents, the first $250,000

of unrestricted bequests are to be classified as budgeted activities, with the balance

being board designated for endowment and added to the endowment investment funds.

Cash and Cash Equivalents

Cash and cash equivalents include currency, demand deposits, and liquid investments with

a maturity, at time of purchase, of three months or less. Cash held by the University for long-

term purposes is included in investments. At June 30, 2018, the University’s cash balances

exceeded federally insured limits by $745,308. The University does not believe these funds

to be at substantial risk of loss due to the lack of federal insurance coverage.

Accounts Receivable and Related Allowance for Doubtful Accounts

Accounts receivable primarily include amounts due to the University for tuition and fees.

The University grants credit to students and generally does not require collateral or other

security in extending credit to students. Balances are stated net of an allowance for doubtful

accounts.



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Accounts Receivable and Related Allowance for Doubtful Accounts (Continued)

The allowance estimates are based on past collection experience, an aging analysis of

outstanding balances and expected payment information obtained from a third party

collection agency. The University writes off accounts receivable that have become

uncollectible. Payments subsequently received on such receivables are credited to the

allowance for uncollectible amounts. Concentration risk with respect to accounts receivable

is typically limited due to the large number of accounts and low average balance.

Loans Receivable

Loans receivable primarily consist of funds advanced to students under the Federal Perkins

Loan Program. Under the terms of the program, these loans are subject to forgiveness or

assignment back to the federal government under certain circumstances. Balances are stated

net of an allowance for doubtful accounts. Concentration risk with respect to loans receivable

is limited due to the large number of accounts and low average balance.

Prepaid Expenses and Other Assets

Accounts included in prepaid expenses and other assets include the following:

Marketing Fees Deposits - The University paid a deposit related to marketing services

being performed on behalf of the University. These amounts are owned by the

University until certain time and performance objectives are met.

Prepaid Admissions Marketing Costs and Expense - The University incurred certain

marketing fees and expenses directly attributable to the receipt of future tuition

revenues.

Inventories - Inventories include office supply inventories, buildings and grounds

repairs and maintenance supply inventories, and fuel inventories, and are stated at cost

(first-in, first-out method).

Cash Surrender Value of Life Insurance - The University is designated as the owner

and beneficiary of flexible premium adjustable life insurance policies. Contributions

of life insurance policies are recorded at the cash surrender value at the date of the gift,

which is assumed to approximate fair value. Premium payments are required to be

made by the donor to continue coverage to the maturity dates.

Unamortized Banner Cost - Banners are amortized over a five-year period.



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Prepaid Expenses and Other Assets (Continued)

Unamortized Website Development Costs - The University incurred certain costs and

expenses in the development of its website. These costs are amortized over a five-year

period.

Unamortized Library Books and Hymnals Costs - Library books and hymnals for and

maintained in either the University’s library or the University’s chapel, are capitalized

and amortized over a period of ten years.

Unamortized Course Development Costs and Expenses - The University incurred

certain costs and expenses in the development of online courses. These costs are

amortized over a five-year period.

Investments

Investments are carried at fair value, with all returns on investments (including realized and

unrealized gains and losses) reflected in the consolidated statement of activities. Endowment

assets are managed by the University and pooled to the extent allowable for investment

purposes.

Funds held in trust that consist of irrevocable trusts from which the University is to receive

the income in perpetuity are recorded as investments. The principal is held in trust by LCMS

Foundation and is not available to be used by the University. Given the nature of the

promises, the University records the contributed principal as permanently restricted net

assets. Income received is recorded as either unrestricted or temporarily restricted activity

based on the presence or absence of donor restrictions. Increases or decreases in the fair

value of the trust assets are recorded on the consolidated statement of activities as changes

in permanently restricted net assets.

Investments subject the University to credit risk. The University’s investment policy

stipulates diversification of investments.

Assets Restricted as to Use

The University has agreed to maintain certain assets as a debt reserve fund as required by a

security agreement covering certain bonds and loans described in Note 13. These assets are

in the custody of a third party and may only be released when the underlying conditions are

met.



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Land, Buildings, and Equipment

Land, buildings, improvements, and equipment are recorded at cost, except for property

received by gift, which is recorded at fair value on the date of receipt. Improvements and

equipment are capitalized when their purchase price is greater than $5,000. Title to land and

buildings is in the name of the University, with reversionary clauses to the Synod. These

reversionary clauses are subordinate to the collateralization interests associated with loans

and bonds payable described in Notes 13 and 14.

Buildings, improvements, and equipment are depreciated using the straight-line method over

the following estimated useful lives:

Buildings

Parking garage and athletic facilities 60 years

Other buildings 39 - 50 years

Athletic field 25 years

Building and other improvements 10 - 50 years

Equipment 5 - 30 years

Art Objects

The University has a collection of art objects, most of which were contributed to the

University. The value of these objects is not recorded in the accompanying consolidated

statement of financial position. Concordia University Chicago’s Board of Regents has given

management the authority to sell a significant portion of the collection to the extent that such

objects are not necessary for the furtherance of the mission of the University.

Compensated Absences

The University provides for and accrues vested compensated absences benefits that are

provided to most of its nontemporary employees.

Deferred Revenue

Deferred revenue primarily consists of unearned summer tuition and fees collected from

college students and parents of children in the Early Childhood Center (ECC), as well as

deposits made both by students and by parents of children in ECC for future school terms.

Accordingly, this deferred revenue will be recognized as tuition and fee revenue in the

subsequent fiscal year when it is earned.

Interest Rate Swap Derivative

The University records its interest rate swap agreements at fair value, with unrealized gains

and losses being recorded in the consolidated statement of activities.



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Unamortized Debt Issuance Costs and Expenses Credit costs associated with the loans described in Note 13 are paid in advance and amortized

according to the period covered. Costs associated with the issuance of bonds described in Note 14 are amortized over the weighted-average life of the bonds, which approximates the effective interest method.

Tuition and Fees

Student tuition and fees are recorded as revenue during the year the related academic services are rendered.

Gifts, Grants, and Contracts Revenue Gifts, grants, and contracts are recorded as revenue when received or promised/contracted.

Irrevocable split-interest agreements, including charitable remainder trusts, charitable lead trusts and perpetual trusts, are recorded as revenue when the trust agreements are executed. Revenue from the split-interest agreements is recorded as contribution revenue based on the present value of the expected cash flows to be received by the University.

All contributions are considered to be available for the University’s unrestricted use, unless

specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes; however, donor-restricted contributions and investment income with restrictions that are met in the same reporting period are reported as unrestricted support. Pledges of contributions due in future periods, including amounts expected to be received from split-interest agreements, imply a time restriction and are stated net of estimated uncollectible pledges. Accordingly, pledges are accounted for as temporarily restricted net assets until both the implied time restriction is met and the purpose restriction, if any, has been fulfilled. Conditional promises to give are not included as support until the conditions are substantially met.

Unconditional promises to give that are expected to be collected within one year are

recognized as support and recorded as a receivable at net realizable value. Unconditional promises to give not expected to be collected within one year are recorded at the present value of their estimated future cash flows and are discounted at an appropriate risk-adjusted interest rate.

Gifts and grants, including unconditional pledges, that are restricted for buildings and

equipment are recognized as increases in temporarily restricted net assets and released over the useful lives of the underlying assets acquired or constructed.

Contributed services are reported in the consolidated financial statements at fair value for

voluntary donations of services when those services (1) create or enhance nonfinancial assets or (2) require specialized skills that are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation.



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Auxiliary Enterprises

The University's auxiliary enterprises exist primarily to furnish goods and services to

students, faculty, and staff. Managed as essentially self-supporting activities, the

University's auxiliary enterprises consist of residence halls, dining facilities, conference

services, and the University bookstore. Auxiliary enterprise revenues and expenses are

reported in the accompanying statements of activities in unrestricted net assets. Auxiliary

enterprises revenue is recognized as the University provides the goods and services.

Federal Student Aid Funds

During 2018, the University disbursed $3,011,204 to students under the Federal Pell Grant

Program. This activity is not included in the accompanying consolidated financial statements

as it is paid directly by the federal government.

Fair Value Measurements

USGAAP establishes a framework for measuring fair value. That framework uses a

hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

USGAAP requires the organization to maximize the use of observable inputs when

measuring fair value. The hierarchy describes three levels of inputs, which are as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices

for identical assets or liabilities in inactive markets; or inputs that are derived

principally from or corroborated by observable market data by correlation or

other means.

Level 3: Significant unobservable inputs.

In many cases, a valuation technique used to measure fair value includes inputs from more

than one level of the fair value hierarchy. The lowest level of significant input determines

the placement of the entire fair value measurement in the hierarchy. The categorization of

an investment within the hierarchy reflects the relative ability to observe the fair value

measure and does not necessarily correspond to the perceived risk of that investment.

If an investment that is measured using net asset value (NAV) has a readily determinable

fair value (that is, it can be traded at the measurement date at its published NAV), it is

included in Level 1 of the hierarchy. Otherwise, investments measured using NAVs are not

included in Level 1, 2, or 3, but are separately reported.

The University recognizes transfers between levels at the end of the reporting period. For

the year ended June 30, 2018, no transfers were recorded.



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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Valuation Techniques Following is a description of the valuation techniques used for assets and liabilities measured

at fair value on a recurring basis. There have been no changes to the techniques used during the year ended June 30, 2018.

• Charitable remainder and lead trusts: Valued using the fair value of the assets held in

the trust reported by the trustee as of June 30, 2018. The trust valuations are based on assumptions about the present value of distributions to be received from the trusts.

• Mutual funds: Valued at the NAV of shares on the last trading day of the fiscal year.

• Equity securities: Valued at the closing quoted price in an active market. • Notes, bonds, and debt securities: The notes, bonds, and debt securities held by the

University generally do not trade in active markets on the measurement date. These investments are valued using inputs including yields currently available on comparable securities of issuers with similar credit ratings, recent market price quotations (where observable), bond spreads, and fundamental data relating to the issuer.

• Funds held in trust: Valued using the fair value of the assets held in the trust reported

by the trustee as of June 30, 2018. The University considers the measurement of its beneficial interest in the perpetual charitable trust to be a Level 3 measurement within the hierarchy because even though that measurement is based on the unadjusted fair value of trust assets reported by the trustee, the University will never receive those assets or have the ability to direct the trustee to redeem them.

• Interest rate swap agreement: The fair value is estimated using forward-looking

interest rate curves and discounted cash flows that are observable or that can be corroborated by observable market data.

Use of Estimates The preparation of consolidated financial statements in conformity with USGAAP requires

management to make estimates and assumptions that affect the amounts recorded in the consolidated financial statements and disclosed in the accompanying notes. Actual results could differ from those estimates.

Functional Allocation of Expenses

The costs of supporting the various programs and other activities have been summarized on a functional basis in the statement of activities. Depreciation, interest, facilities operations and maintenance, insurance, and utilities expenses have been allocated among the educational program, institutional support, and fundraising categories based on the square footage of the space utilized by the different University departments. Certain information technology expenses have been allocated among the same categories based on the number of users in the different University departments.



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New Accounting Standards

Financial Accounting Standards Board (FASB) has issued ASU 2014-09, Revenue from

Contracts with Customers, as amended by ASU 2015-14, which supersedes or replaces

nearly all USGAAP revenue recognition guidance. This standard establishes a new contract

and control-based revenue recognition model, changes the basis for deciding when revenue

is recognized over time or at a point in time, and will expand disclosures about revenue.

ASU 2014-09, as amended, is effective for nonpublic companies for annual reporting periods

beginning after December 15, 2018, and interim periods within the annual period beginning

after December 15, 2019. The University is currently assessing the impact of this new

standard.

FASB has issued ASU No. 2016-02, Leases (Topic 842) to increase the transparency and

comparability about leases among entities. The new guidance requires lessees to recognize

a lease liability and a corresponding lease asset for virtually all lease contracts. It also

requires additional disclosures about leasing arrangements. ASU 2016-02 is effective for

annual periods beginning after December 15, 2019, and interim periods within fiscal years

beginning after December 15, 2020, and requires a modified retrospective approach to

adoption. The University is currently assessing the impact of this new standard.

FASB has issued ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of

Financial Statements of Not-for-Profit Entities. ASU No. 2016-14 is intended to simplify

and improve current net asset classification requirements and the information presented in

financial statements and notes about a not-for-profit entity's liquidity, financial performance,

expense classifications and cash flows. ASU No. 2016-14 is effective for fiscal years

beginning after December 15, 2017, with early adoption permitted. The University is

currently assessing the impact of this new standard.

FASB has issued ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the

Scope and the Accounting Guidance for Contributions Received and Contributions Made.

ASU No. 2018-08 is intended to assist entities in (1) evaluating whether transactions should

be accounted for as contributions (nonreciprocal transactions) within the scope of

contribution accounting guidance, or as exchange (reciprocal) transactions subject to other

guidance, and (2) determining whether a contribution is conditional. ASU No. 2018-08 is

effective for fiscal years beginning after December 15, 2018, for transactions in which the

entity serves as a resource recipient, and for fiscal years beginning after December 15, 2019,

for transactions in which the entity serves as a resource provider. Early adoption is

permitted. The University is currently assessing the impact of this new standard.



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3. ALLOWANCES FOR UNCOLLECTIBLE RECEIVABLES

Allowances for uncollectible receivables as of June 30, 2018 are summarized as follows:

Accounts

Receivable

Contributions

Receivable

Loans

Receivable

Beginning balance $ 1,524,546 $ 56,787 $ 271,307

Bad debt expense

Charged (credited)

to expense

243,766

2,091

-

Collection on

accounts previously

written off (24,247) - -

Accounts written off (70,702) - -

Other adjustments - - 1,691

ENDING BALANCE $ 1,673,363 $ 58,878 $ 272,998

4. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets as of June 30, 2018 are summarized as follows:

Unamortized costs

Banners $ 12,403

Website development 83,715

Library books and hymnals 121,438

Online course development 666,334

Total unamortized costs 883,890

Prepaid expenses and other assets

Admissions marketing costs 1,543,927

Other 1,290,155

Marketing fees deposit 1,000,000

Inventories 375,696

Cash surrender value of life insurance 333,142

TOTAL $ 5,426,810

Unamortized costs as of June 30, 2018 are summarized as follows:

BEGINNING OF THE YEAR UNAMORTIZED COSTS $ 880,442

Amortizable costs expended 334,969

Amortization (331,521)

END OF THE YEAR UNAMORTIZED COSTS $ 883,890



- 21 -

4. PREPAID EXPENSES AND OTHER ASSETS (Continued)

Estimated future amortization cost is as follows:

Years Ending

June 30,

2019

$ 286,382

2020 214,748

2021 155,996

2022 104,018

2023 49,584

2024 and thereafter 73,162

TOTAL $ 883,890

5. GRANTS RECEIVABLE

Grants receivable at June 30, 2018 are summarized as follows:

Amounts due within one year

State of Illinois Cooperative

Work-Study Program (ICWS)

$ 11,615

National Science Foundation (NSF) 15,970

TOTAL AMOUNTS DUE WITHIN ONE YEAR $ 27,585

6. CONTRIBUTIONS RECEIVABLE Contributions receivable at June 30, 2018 are summarized as follows:

Amounts due Within one year $ 361,168 One to five years 446,968 Thereafter 48,364

856,500 Less Present value discount (59,447) Estimated uncollectible pledges (58,878)

TOTAL $ 738,175

The discount rate was 5.50% for the year ended June 30, 2018.



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6. CONTRIBUTIONS RECEIVABLE (Continued) The underlying gifts associated with the contributions receivable are reflected in net assets

as follows:

Temporarily restricted $ 722,461 Permanently restricted 15,714

TOTAL $ 738,175

7. CREDIT QUALITY OF RECEIVABLES Student Loans Receivable The University makes uncollateralized loans to students based on financial need. Student

loans are funded through federal government loan programs or institutional resources. At June 30, 2018, student loans represented 0.30% of total assets.

At June 30, 2018, student loans consisted of the following:

Federal government programs $ 582,348

Less allowance for doubtful accounts Beginning of year (271,307) Accounts written off (1,691)

End of year (272,998)

STUDENT LOANS RECEIVABLE, NET $ 309,350

The University participates in the Perkins federal revolving loan program. The availability

of funds for loans under the program is dependent on reimbursements to the pool from

repayments on outstanding loans. Funds advanced by the federal government of $649,701 at

June 30, 2018, are ultimately refundable to the government and are classified as liabilities in

the consolidated statement of financial position. Outstanding loans cancelled under the

program result in a reduction of the funds available for loan and a decrease in the liability to

the government.

The authority to make new Perkins loans ended September 30, 2017, with disbursements

permitted through June 30, 2018, for students with existing Perkins loans. The University

will be required to return the federal contribution and may continue servicing their Perkins

loans or assign the Perkins loans to the Department of Education.



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7. CREDIT QUALITY OF RECEIVABLES (Continued)

At June 30, 2018, the following amounts were past due under student loan programs:

Less Than Two

Years Past Due

Two Years up

to Five Years

Past Due

More Than

Five Years Past

Due

Total Past Due

$ 64,014 $ 63,083 $ 208,531 $ 335,628

Allowances for doubtful accounts are established based on prior collection experience and

current economic factors which, in management’s judgment, could influence the ability of

loan recipients to repay the amounts per the loan terms. Institutional loan balances are written

off only when they are deemed to be permanently uncollectible. Amounts due under the

Perkins loan program are guaranteed by the government and, therefore, no reserves are

placed on any past due balances under the program.

8. CHARITABLE REMAINDER AND LEAD TRUSTS

The charitable remainder and lead trust agreements of which the University is the beneficiary

are administered by the LCMS Foundation as trustee or fiscal agent. Distributions are to be

made to the University (lead trusts) or to the donor’s designee (remainder trusts) during the

terms of the agreements, which vary in maturity through the year 2048 as of June 30, 2018.

At the end of the terms, a portion of the remaining trust assets, as defined in the trust

agreements, is to be distributed to the University. As of June 30, 2018, the present value was

estimated using an annualized growth rate of 5.90% and a discount rate of 3.50%. The

change in value of these split-interest agreements for the year ended June 30, 2018 resulted

in losses of $(37,784).



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9. INVESTMENTS

Investments at June 30, 2018 are summarized as follows:

Endowment Fund

Other

Total

Mutual funds Equities $ 14,307,235 $ - $ 14,307,235 Fixed income 6,279,043 - 6,279,043 Real estate 1,337,832 - 1,337,832 Commodities 1,009,538 - 1,009,538 Master limited partnerships

1,763,118

-

1,763,118

Cash 29,994 - 29,994 Equity securities 30,796 - 30,796 Notes, bonds and debt securities

9,285

-

9,285

Cash and cash equivalents

51,795

-

51,795

Funds held in trust - 1,159,863 1,159,863

TOTAL $ 24,818,636 $ 1,159,863 $ 25,978,499

Investments are reported in the consolidated statement of financial position as follows: Investments $ 11,688,747 Investments restricted to endowment 14,289,752

TOTAL $ 25,978,499

Total investment return consists of the following:

Interest and dividend income $ 813,840 Net realized and unrealized gains on investments reported at fair value

749,764

Less investment expenses (60,534)

TOTAL $ 1,503,070

Investment return is reported in the consolidated statement of activities as follows:

Operating revenues and gains Pooled investments endowment payout $ 1,039,703 Nonpooled investments return (9,652) Non-operating revenue Net changes in funds held in trust 54,174 Pooled investments endowment return in excess (less than) endowment payout

418,845

TOTAL $ 1,503,070



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10. LAND, BUILDINGS, AND EQUIPMENT Land, buildings, and equipment as of June 30, 2018 are summarized as follows:

Land $ 2,269,643 Construction in progress 8,265,419 Buildings 77,923,308 Building - other improvements and athletic field 15,114,835 Equipment 23,092,902

Subtotal 126,666,107 Less accumulated depreciation (63,537,958)

TOTAL $ 63,128,149

Not included in construction in progress is $1,602,719 of outstanding commitments on

construction contracts as of June 30, 2018. Purchases of land, buildings, and equipment for the year ended June 30, 2018 are funded as

follows:

Temporarily restricted net assets $ 4,777,137 Unrestricted net assets 6,723,164

TOTAL $ 11,500,301

Included in temporarily restricted purchases of land, buildings, and equipment is $26,778 of

accounts payable as of June 30, 2018. 11. ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT OBLIGATIONS Professional accounting standards require that an entity recognize the fair value of a liability

for a conditional asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. An asset retirement obligation would be reasonably estimable if: (a) it is evident that the fair value of the obligation is embodied in the acquisition price of the asset, (b) an active market exists for the transfer of the obligation, or (c) sufficient information exists to apply to an expected present value technique. In applying this professional guidance to the University, it was necessary to determine if the University will undertake any major renovation, sell, dispose, or abandon any related assets; what liability would be associated with such action; and the date such action would be taken.

The University’s conditional asset retirement obligations primarily relate to the remediation

of asbestos contained in buildings that the University owns. 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. Determination of the recorded liability is based on a number of estimates and assumptions including discount rate, abatement cost estimates, and estimates of dates of abatement. The University estimated its liability at June 30, 2018 to be $289,577, which is included in the accounts payable and other liabilities line in the consolidated statement of financial position.



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12. OBLIGATIONS UNDER CAPITAL LEASES

The University leases equipment under a capital lease; the assets and liabilities under this capital lease are recorded at the present value of the minimum lease payments. The assets are being depreciated over their estimated productive lives. Depreciation of assets under this capital lease was included in depreciation expense for year ended June 30, 2018.

Following is a summary of property held under capital leases:

Telephone equipment $ 316,983 Less: accumulated depreciation (47,547)

PROPERTY HELD UNDER CAPITAL LEASES, NET

$ 269,436

Minimum future lease payments under capital leases of June 30, 2018 are:

2019 $ 109,186 2020 - 2021 - 2022 - 2023 -

Total minimum lease payments 109,186 Less: amount representing interest (4,073)

PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS $ 105,113

The interest rate on the capitalized lease is 3.875% and was imputed based on the University’s borrowing rate at the inception of the lease.

13. LOANS PAYABLE

Loans payable at June 30, 2018 are summarized as follows:

2013 LCEF Loan $ 10,893,849 2016 LCEF Construction Loan 6,524,011 2018 Busey Bank Loan 12,800,000 Synod Loan 3,155,789

Total loans payable 33,373,649

Unamortized costs - beginning of year (189,389) Amortizable costs expended (123,807) Amortization 88,690

Unamortized costs - end of year (224,506)

TOTAL DEBT NET OF AMORTIZABLE DEBT COSTS

$ 33,149,143



- 27 -

13. LOANS PAYABLE (Continued)

2013 LCEF Loan

On July 1, 2013, the University obtained a loan from LCEF in the amount of $12,500,000.

The loan matures on July 1, 2033. The loan carries an initial interest rate of 3.875%, to be

adjusted every five years. Monthly payments of $65,120 (principal and interest, combined),

to be adjusted every five years, are required to be made, with a balloon payment of all

remaining amounts due on the maturity date. Effective July 1, 2018, the interest rate was

adjusted to 3.50%, and the monthly payments were adjusted to $62,999. Interest expense on

this loan reported in the consolidated statement of activities for the year ended June 30, 2018

was $425,025.

The loan is subject to various covenants as well as a security agreement (the 2013 Security

Agreement) covering both the 2013 LCEF Loan and the 2013 IFA Bonds, including the

establishment of a $600,000 debt reserve fund.

The campus property, as well as one residential property owned by the University, is

considered collateral under the 2013 Security Agreement. The 2013 Security Agreement

requires the University to meet all obligations associated with the underlying agreements for

the 2013 LCEF Loan and the 2013 IFA Bonds. LCEF and Huntington Bank share this

collateral under an intercreditor agreement.

Effective July 2, 2018, the 2013 Security Agreement was replaced with a new security

agreement (the 2018 Security Agreement) covering the 2013 LCEF Loan, the 2016 LCEF

Construction Loan, the 2018 LCEF Loan, and the 2013 IFA Bonds as amended on July 2,

2018 (the Amended 2013 IFA Bonds). The campus property, as well as one residential

property owned by the University, continues to be considered collateral under the 2018

Security Agreement. The 2018 Security Agreement does not require the establishment of a

debt reserve fund, but it does require the University to meet all obligations associated with

the underlying agreements for the 2013 LCEF Loan, the Amended 2016 LCEF Construction

Loan, the 2018 LCEF Loan, and the Amended 2013 IFA Bonds. LCEF and Busey Bank

share this collateral under an intercreditor agreement (the 2018 Intercreditor Agreement).



- 28 -


2014 Huntington Bank Loan

On July 2, 2014, the University obtained a bank loan from The Huntington National Bank

(who acquired FirstMerit Bank on August 16, 2016) in the amount of $5,500,000, maturing

on July 1, 2019. The loan carries an interest rate based off LIBOR plus 175 basis points,

which ranged from 2.976% to 3.732% during the year ended June 30, 2018. Monthly

principal payments of $45,833 are required to be made, with a balloon payment of all

remaining amounts due on the maturity date. This loan requires a security interest in the

investments held by the University. Interest expense on this loan reported in the consolidated

statement of activities for the year ended June 30, 2018 was $118,177. This loan was paid

off on June 29, 2018, through proceeds received from the 2018 Busey Bank Loan as

described below.

2016 Huntington Bank Construction Loan

On August 18, 2016, the University entered into an agreement for a 24-month construction

loan commitment of $13,500,000 to be used to construct a new residence hall on its campus.

Funds are drawn down as needed to pay for construction costs. The Huntington National

Bank is providing $6,750,000 of this total at an annual interest rate (on 50% of the drawn

funds) equal to LIBOR plus 175 basis points with a security interest in investments held by

the University. Interest expense on this loan reported in the consolidated statement of

activities for the year ended June 30, 2018 was $196,407. This loan was paid off on June 29,

2018, through proceeds received from the Busey Bank Loan as described below.

2016 - LCEF Construction Loan

Of the $13,500,000 construction loan discussed above, the remaining $6,750,000 is being

provided by LCEF at an annual interest rate (on 50% of the drawn funds) equal to the LCEF

cost of funds (currently 1.875%) plus 150 basis points with a security interest in all property

covered by the intercreditor agreement discussed above. At the end of term, the loan will be

converted into a new 20-year loan, the interest rate to be calculated in the same manner and

with the same security interest as the construction loan. Interest expense on this loan reported

in the consolidated statement of activities for the year ended June 30, 2018 was $201,850.

Subsequent to year end, the loan was converted into a 20-year loan, effective July 2, 2018,

with a maturity date of August 2, 2038 (the Amended 2016 LCEF Construction Loan). The

loan carries an initial interest rate of 3.375%, to be adjusted every five years, with a security

interest in all property covered by the 2018 Intercreditor Agreement. Monthly payments of

$38,715 (principal and interest, combined), to be adjusted every five years, are required to

be made, with a balloon payment of all remaining amounts due on the maturity date.



- 29 -


2018 - Busey Bank Loan

On June 29, 2018, the University obtained a bank loan from Busey Bank in the amount of

$12,800,000, maturing on June 29, 2025. The proceeds of the loan were applied as follows:

Payoff 2014 Huntington Bank Loan $ 3,355,580 Payoff 2016 Huntington Bank Construction Loan 6,542,950 Residence Hall construction, renovation and related costs 2,901,470

TOTAL $ 12,800,000

The loan carries an interest rate based of LIBOR plus 135 basis points, which was 3.44% at June 30, 2018. Monthly payments of accrued interest are required to be made beginning August 1, 2018, with monthly principal payments beginning August 1, 2020, amortized on a 20-year basis, and a balloon payment of all remaining amounts due on the maturity date. This loan requires a security interest in the investments held by the University. No interest expense on this loan was reported in the consolidated statement of activities for the year ended June 30, 2018.

2018 LCEF Loan Subsequent to year-end, effective July 2, 2018, the University obtained a loan from LCEF

in the amount of $1,500,000 for the purchase of two residential properties. The loan matures on July 2, 2038. The loan carries an initial interest rate of 3.75%, to be adjusted every five years, with a security interest in all property covered by the 2018 Intercreditor Agreement discussed above as well as a security interest in the properties being purchased. Monthly payments of $8,893 (principal and interest, combined), to be adjusted every five years, are required to be made, with a balloon payment of all remaining amounts due on the maturity date.

Synod Loan The Synod provides a line of credit to the University. The available line of credit is

$8,000,000 as of June 30, 2018, and is renewable on July 1 of each year. The line of credit was renewed for the period July 1, 2018 through June 30, 2019 in the amount of $7,350,000. The floating interest rate paid on funds advanced to the University was 4.000% on June 30, 2018, and ranged from 3.875% to 4.000% during the year ended June 30, 2018. Interest expense on the line of credit reported in the consolidated statement of activities for the year ended June 30, 2018 was $54,752.



- 30 -

13. LOANS PAYABLE (Continued) Minimum Payment Schedule The University’s minimum principal payments under the terms of the loan agreements above

are as follows:

Years Ending June 30,

2019 $ 627,959 2020 3,824,899 2021 1,279,256 2022 1,356,891 2023 2024 and thereafter

1,382,047 24,902,597

TOTAL $ 33,373,649

14. BONDS PAYABLE Bonds payable at June 30, 2018 is summarized as follows:

2013 IFA Bonds $ 13,600,000

Unamortized costs - beginning of year (57,715) Amortization 57,715

Unamortized costs - end of year -

Total debt net of amortizable debt costs $ 13,600,000

2013 Illinois Finance Authority Bonds On July 1, 2013, the University issued $17,000,000 in variable rate tax-exempt revenue

bonds through the IFA (2013 IFA Bonds). The 2013 bonds, which mature on July 1, 2033, are revenue refunding tax-exempt bonds

issued through the IFA. The interest rate during the initial interest period (ending June 30, 2018) equals 72% of the sum of the applicable margin plus the one-month LIBOR. The applicable margin, initially set at 300 basis points and adjustable semiannually, ranges from 250 basis points to 325 points, depending upon certain financial ratios maintained by the University. Effective October 1, 2013, quarterly principal payments of $170,000 are required to be made with a balloon payment of all remaining amounts due on the maturity date. The interest rate must be renegotiated upon termination of the initial interest period. The interest rates paid on the 2013 IFA Bonds ranged from 2.682% to 3.230% during the year ended June 30, 2018. Interest expense on the bonds reported in the consolidated statement of activities for the year ended June 30, 2018 was $402,117.



- 31 -

14. BONDS PAYABLE The bonds, held by Huntington Bank, a single purchaser, are subject to various covenants as

well as covenants and security interests defined in the 2013 Security Agreement as discussed above.

The University’s minimum principal payments under the terms of the bond agreement above

are as follows:

Years Ending

June 30,

2019 $ 680,000

2020 680,000

2021 680,000

2022 680,000

2023

2024

680,000

10,200,000

TOTAL $ 13,600,000

2013 Amended Illinois Finance Authority Bonds

Subsequent to year end, effective July 2, 2018, the bonds were remarketed to Busey Bank

as a single purchaser, requiring an amendment to the 2013 IFA Bonds agreement, the

cancellation of the bonds held by Huntington Bank, and the re-issuance of the Amended

2013 IFA Bonds to Busey Bank in the amount of $13,600,000. The interest rate equals 70.5%

of the sum of the applicable margin of 175 basis points plus the one-month LIBOR and is

adjusted monthly. The University’s minimum principal payments under the terms of the

amended bond agreement are unchanged. The Amended 2013 Illinois Finance Authority

Bonds are subject to various covenants as well as covenants and security interests defined in

the 2018 Security Agreement.

15. INTEREST RATE SWAP DERIVATIVE

The University entered into a $2,750,000 interest rate swap agreement effective July 1, 2015

to manage the impact of future interest rate changes on underlying floating rate debt. The

agreement, which terminates July 1, 2019, requires the University to pay a monthly fixed

rate (3.58% annual interest rate) to the counterparty in exchange for variable rate payments

from the counterparty based on a percentage of one-month LIBOR. The increase in the fair

value of the interest rate swap for the year ended June 30, 2018 is $34,424 and is reflected

as an increase in unrestricted net assets in the consolidated statement of activities. During

the year ended June 30, 2018, interest expense recognized in the consolidated statement of

activities includes $8,914 for the interest rate swap activity.

Subsequent to year-end, the interest rate swap agreement was terminated, reflecting a gain

of $15,199.



- 32 -

16. NET ASSETS

Net assets are summarized by fund as follows:

Temporarily Permanently

Unrestricted Restricted Restricted Total

Operating funds $ (9,135,492) $ 3,686,200 $ - $ (5,449,292)

Endowment and similar

funds (Note 17)

9,402,210

2,738,662

11,556,387

23,697,259

Net investment in plant 1,065,128 18,140,048 - 19,205,176

Funds held in trust - - 2,124,599 2,124,599

Other - - 31,589 31,589

TOTAL NET ASSETS $ 1,331,846 $ 24,564,910 $ 13,712,575 $ 39,609,331

17. TEMPORARILY RESTRICTED NET ASSETS

Temporarily restricted net assets contain donor-imposed restrictions that expire upon the

passage of time or once specific actions are undertaken by the University. Temporarily

restricted net assets are available for the following specific purposes:

Purpose restrictions

Academic programs

Instruction/divisional $ 323,170

Other instructional programs 103,518

Student services 1,276,275

Institutional support 192,381

Fundraising 9,858

Auxiliary enterprises 20,000

Student aid 1,345,478

Net investment in plant 18,140,048

Debt repayment 1,413,432

Future capital expenditures 499,587

Time restrictions 1,241,163

TOTAL $ 24,564,910



- 33 -

17. TEMPORARILY RESTRICTED NET ASSETS (Continued)

Net assets shown above as debt repayment are associated with term endowments which the

donors have indicated may be used as collateral on debt, if necessary. The income associated

with these term endowments is available for the following purposes:

Academic programs

Instruction/divisional $ 109


Student services 85,414

Institutional support 798


TOTAL $ 1,413,432

18. PERMANENTLY RESTRICTED NET ASSETS

Permanently restricted net assets as of June 30, 2018 consist of various individual funds that

are subject to donor-imposed restrictions that the principal be invested in perpetuity. The

income associated with the permanently restricted net assets is available for the following

purposes:

Academic programs $ 346,507

Academic support 234,404



Auxiliary enterprises 272,236


Student loans 15,874

General operating purposes 753,341

TOTAL $ 13,712,575

Assets making up permanently restricted net assets as of June 30, 2018 consist of the

following:

Cash and investments $ 12,669,608

Prepaid expenses and other assets 158,873

Contributions receivable - net 15,714

Charitable remainder and lead trusts 868,380

TOTAL $ 13,712,575



- 34 -

18. PERMANENTLY RESTRICTED NET ASSETS (Continued) The University accounts for endowment net assets by preserving the fair value of the original

gift as of the gift date of the donor-restricted endowment fund absent explicit donor stipulations to the contrary. As a result, 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, if any. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets, according to donor stipulations, until those amounts are appropriated for expenditure by the University for the donor-stipulated purpose.

The University considers the following factors in making a determination either to

appropriate or to accumulate donor-restricted endowment funds: 1. The duration and preservation of the fund. 2. The purposes of the University and the donor-restricted endowment fund. 3. General economic conditions. 4. The possible effects of inflation and deflation. 5. The expected total return from income and the appreciation of investments. 6. Other resources of the University. 7. The investment policies of the University. From time-to-time, the fair value of assets associated with individual donor-restricted

endowment funds may fall below the level that the donor or state law requires the University to retain as a fund of perpetual duration. In accordance with USGAAP, deficiencies of this nature that are reported in unrestricted net assets were $5,297 as of June 30, 2018. These deficiencies resulted from unfavorable investment market fluctuations, as well as continued appropriation of endowment assets for expenditures for certain programs that were deemed prudent by the Board of Regents.

The University has adopted investment and spending policies for endowment assets that

attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Under these policies, as approved by the Board of Regents, the endowment assets are invested in a manner that is intended to produce results over the long-term that exceed its endowment payout (not expected to exceed 4.50% annually) plus inflation as measured by the Consumer Price Index, while assuming a moderate level of investment risk. Actual returns in any given year may vary from this objective.

The University has a policy of appropriating for distribution each year a percentage of the

endowment fund net assets’ average fair value over the prior 12 quarters through the end of the prior fiscal year in which the distribution is planned. In an effort to increase the endowment market value over time, the nominal spending rate was decreased from 4.75% during fiscal year 2018 to 4.50%, decreasing the fiscal year 2018 endowment payout by $50,888. Future spending rates are projected to be 4.25% in fiscal year 2019 and 4.00% thereafter.



- 35 -

18. PERMANENTLY RESTRICTED NET ASSETS (Continued)

To satisfy its long-term rate-of-return objective, the University relies on a total return

strategy in which the investment returns are achieved through both capital appreciation

(realized and unrealized) and current yield (interest and dividends). 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. The endowment

assets are managed by the Foundation through an investment committee consisting of

members of the Foundation’s Board of Directors that meets quarterly at a minimum to ensure

the objectives of the investment policy are being met and that the strategies used to meet the

objectives are in accordance with the approved investment policy.

The composition of endowment funds by type of fund as of June 30, 2018:



Donor-restricted endowment funds $ (5,297) $ 2,738,662 $ 11,556,387 $ 14,289,752

Board-designated endowment funds 9,407,507 - - 9,407,507

TOTAL FUNDS $ 9,402,210 $ 2,738,662 $ 11,556,387 $ 23,697,259

During the year ended June 30, 2018, the University had the following endowment related

activities:



ENDOWMENT NET ASSETS,

BEGINNING OF YEAR

$ 9,154,459

$ 2,255,600

$ 11,246,144

$ 22,656,203

Investment return

Investment income 355,117 395,100 - 750,217

Net appreciation (realized

and unrealized)

335,289

373,042

-

708,331

Total investment return 690,406 768,142 - 1,458,548

Contributions and transfers to board-

designated endowment funds

1,980

207,574

412,657

622,211

Reclassifications 102,414 - (102,414) -

Appropriations of endowment

assets for expenditures

(547,049)

(492,654)

-

(1,039,703)

ENDOWMENT NET ASSETS,

END OF YEAR

$ 9,402,210

$ 2,738,662

$ 11,556,387

$ 23,697,259



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19. NET ASSETS RELEASED FROM RESTRICTIONS

Temporarily restricted net assets released from donor restrictions for the year ended June 30,

2018 are summarized as follows:

Purposes restrictions accomplished

Academic programs

Instructional/divisional $ 876,266


Academic support -



Fundraising 9,332

Auxiliary services 1,419

Student aid 950,276

Net investment in plant 1,104,527

TOTAL $ 3,116,495

20. FAIR VALUE MEASUREMENTS

The following table summarizes assets and liabilities by fair value input levels as of June 30,

2018:

Level 1 Level 2 Level 3 Total

ASSETS

Charitable remainder and lead trusts $ - $ - $ 1,504,364 $ 1,504,364

Investments

Mutual funds

Equities 14,307,235 - - 14,307,235

Fixed income 6,279,043 - - 6,279,043

Real estate 1,337,832 - - 1,337,832

Commodities 1,009,538 - - 1,009,538

Master limited partnerships 1,763,118 - - 1,763,118

Equity securities 30,796 - - 30,796

Notes, bonds, and debt securities - 9,285 - 9,285

Funds held in trust - - 1,159,863 1,159,863

Cash and cash equivalents* 81,789

Total investments 24,727,562 9,285 1,159,863 25,978,499

Interest rate swap agreement - 15,530 - 15,530

TOTAL ASSETS $ 24,727,562 $ 24,815 $ 2,664,227 $ 27,498,393

* Reported at cost.



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20. FAIR VALUE MEASUREMENTS (Continued)

A rollforward of the fair value measurements using unobservable inputs (Level 3) for the

year ended June 30, 2018 is as follows:

Charitable

Lead and

Remainder

Trusts

Funds Held

in Trusts

Total

FAIR VALUE, JULY 1, 2017 $ 1,297,035 $ 1,114,290 $ 2,411,325

Net change in value (37,784) 54,174 16,390

Trust assets added 245,113 - 245,113

Trust assets distributed - (8,601) (8,601)

FAIR VALUE, JUNE 30, 2018 $ 1,504,364 $ 1,159,863 $ 2,664,227

21. INCOME TAXES

Concordia University Chicago and the Foundation are organizations described in Section

501(c)(3) of the Internal Revenue Code (IRC) of 1986, as amended and, as such, are exempt

from federal income tax on income earned related to exempt activities under IRC Section

501(a). In addition, the Internal Revenue Service has determined that Concordia University

Chicago and the Foundation are not private foundations within the meaning of

Section 509(c) of the IRC.

22. EMPLOYEE BENEFITS AND DEFINED BENEFIT PLANS

The University participates in the retirement and disability/survivor benefit programs

provided by CPS through the Concordia Retirement Plan, the Concordia Retirement Savings

Plan, and the Concordia Disability and Survivor Plan. Substantially all full-time employees

are covered by these retirement and survivor programs. The University contributes to CPS

8.7% of the salaries of covered employees for retirement plans and a range from 1.20% to

2.25% of the salaries of covered employees for disability and survivor programs. Retirement

and survivor program expenses for the year ended June 30, 2018 totaled $2,547,208.

23. STUDENT FINANCIAL ASSISTANCE PROGRAMS

The University participates in various student financial aid programs. These programs are

subject to periodic review by the United States Department of Education (USDOE).

Disbursements under each program are subject to disallowance and repayment by the

University.



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24. INTEREST

The University made cash payments for interest totaling $1,418,328 for the year ended

June 30, 2018. A reconciliation of the University’s total interest paid to interest expense

included in the consolidated statement of activities is as follows:

Total interest expense $ 1,082,791

Interest expense capitalized 330,485

Interest expense (accrued) deferred 5,052

TOTAL INTEREST PAID $ 1,418,328

25. RELATED PARTIES

During the year ended June 30, 2018, the University received contributions of $173,770

from members of Concordia University Chicago’s Board of Regents and $35,143 from

members of the Foundation’s Board of Directors.

Auxiliary enterprises revenue includes income from student housing, employee housing,

food service, computer services, bookstore, transportation, convention and conferences,

athletics, and music performances. Accordingly, the auxiliary enterprise expenses include

all costs incurred in providing these services. During the year ended June 30, 2018, the

University paid CAIS $676,529 for certain computer and software services provided to the

University, allocated among the various functions of the University in the consolidated

statement of activities.

The Synod contracts certain insurance coverages on behalf of the University. During the

year ended June 30, 2018, total expenses of these coverages was $1,297,157, including

$729,224 related to worker’s compensation claims.

26. SUBSEQUENT EVENTS

Subsequent events have been evaluated through October 19, 2018, which is the date the

consolidated financial statements were available to be issued.

SUPPLEMENTARY INFORMATION

University Foundation Eliminations Total

ASSETS

Cash and cash equivalents 207,193$ 51,789$ (51,789)$ 207,193$

Due from (to) Concordia University Foundation 1,121,372 (1,121,372) - -

Investments 1,159,868 10,477,090 51,789 11,688,747

Accounts receivable - net 6,196,725 - - 6,196,725

Prepaid expenses and other assets 5,426,810 - - 5,426,810

Grants receivable 27,585 - - 27,585

Contributions receivable - net 738,175 - - 738,175

Loans receivable - net 309,350 - - 309,350

Interest rate swap agreement 15,530 - - 15,530

Assets restricted as to use 600,000 - - 600,000

Charitable remainder and lead trusts 1,504,364 - - 1,504,364

Investments restricted to endowment - 14,289,752 - 14,289,752

Land, buildings, and equipment - net 63,128,149 - - 63,128,149

TOTAL ASSETS 80,435,121$ 23,697,259$ -$ 104,132,380$

LIABILITIES AND NET ASSETS

LIABILITIES

Accounts payable and other liabilities 9,452,624$ -$ -$ 9,452,624$

Accrued payroll and other related liabilities 1,783,835 - - 1,783,835

Deferred revenues 6,080,408 - - 6,080,408

Refundable government student loan funds 351,926 - - 351,926

Obligation under capital lease 105,113 - - 105,113

Loans payable 33,149,143 - - 33,149,143

Bonds payable 13,600,000 - - 13,600,000

Total liabilities 64,523,049 - - 64,523,049

NET ASSETS

Unrestricted (deficit) (4,173,819) (5,297) 5,510,962 1,331,846

Temporarily restricted 17,929,703 12,146,169 (5,510,962) 24,564,910

Permanently restricted 2,156,188 11,556,387 - 13,712,575

Total net assets 15,912,072 23,697,259 - 39,609,331

TOTAL LIABILITIES AND NET ASSETS 80,435,121$ 23,697,259$ -$ 104,132,380$


CONSOLIDATING STATEMENT OF FINANCIAL POSITION

June 30, 2018

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Tuition and fees 79,572,601$ -$ -$ 79,572,601$

Less scholarship and fellowships (18,895,868) - - (18,895,868)

Net tuition and fees 60,676,733 - - 60,676,733

Private gifts and grants 999,515 - - 999,515

Pooled investments endowment payout 547,049 - - 547,049

Nonpooled investments return (9,652) - - (9,652)

Auxiliary services 6,647,083 - - 6,647,083

Other 2,059,478 - - 2,059,478

Net assets released from restrictions 3,116,495 - - 3,116,495

Total operating revenues and gains 74,036,701 - - 74,036,701

OPERATING EXPENSES

Academic programs

Instruction - divisional 26,307,678 - - 26,307,678

Other instructional programs 2,435,959 - - 2,435,959

Academic support 5,934,442 - - 5,934,442

Student services 22,879,088 - - 22,879,088

Auxiliary enterprises 6,192,188 - - 6,192,188

Total program expenses 63,749,355 - - 63,749,355

Management and general 8,594,492 - - 8,594,492

Fundraising 1,638,780 - - 1,638,780

Support to Concordia University Chicago - 1,039,703 (1,039,703) -

Total operating expenses 73,982,627 1,039,703 (1,039,703) 73,982,627

Operating revenues and gains in excess of

(less than) operating expenses 54,074 (1,039,703) 1,039,703 54,074


Other losses (62,643) - - (62,643)

Unrealized gain on interest rate swap agreement 34,424 - - 34,424

Disposal of land, buildings, and equipment (49,317) - - (49,317)


in excess of endowment payout - 12,993 130,364 143,357

Net assets released from restrictions - 1,039,703 (937,289) 102,414

CHANGE IN NET ASSETS (23,462) 12,993 232,778 222,309

NET ASSETS (DEFICIT), BEGINNING OF YEAR (4,150,357) (18,290) 5,278,184 1,109,537

NET ASSETS (DEFICIT), END OF YEAR (4,173,819)$ (5,297)$ 5,510,962$ 1,331,846$


CONSOLIDATING STATEMENT OF ACTIVITIES - UNRESTRICTED


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Government grants and contracts 527,513$ -$ -$ 527,513$

Private gifts and grants 2,264,644 163,105 - 2,427,749

Poled investments endowment payout 492,654 - - 492,654

Other 11,565 - - 11,565

Net assets released from restrictions (3,162,944) 46,449 - (3,116,495)

Total operating revenues and gains 133,432 209,554 - 342,986


Net change in funds held in trust 54,174 - - 54,174

Net change in charitable lead and remainder trusts 16,158 - - 16,158

Other gains 18,297 - - 18,297


in excess of (less than) endowment payout - 405,852 (130,364) 275,488

Net assets released from restrictions - 102,414 (102,414) -

CHANGE IN NET ASSETS 222,061 717,820 (232,778) 707,103

NET ASSETS, BEGINNING OF YEAR 17,707,642 11,428,349 (5,278,184) 23,857,807

NET ASSETS, END OF YEAR 17,929,703$ 12,146,169$ (5,510,962)$ 24,564,910$


CONSOLIDATING STATEMENT OF ACTIVITIES - TEMPORARILY RESTRICTED


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Private gifts and grants 64,150$ 412,657$ (16,768)$ 460,039$

Net change in charitable lead and remainder trusts (53,942) - - (53,942)

Other losses 11,211 - - 11,211

Net assets released from restrictions - (102,414) - (102,414)

Change in net assets before

equity transfer 21,419 310,243 (16,768) 314,894

Equity transfer from Concordia University

Chicago to Concordia University Foundation (16,768) - 16,768 -

CHANGE IN NET ASSETS 4,651 310,243 - 314,894

NET ASSETS, BEGINNING OF YEAR 2,151,537 11,246,144 - 13,397,681

NET ASSETS, END OF YEAR 2,156,188$ 11,556,387$ -$ 13,712,575$


CONSOLIDATING STATEMENT OF ACTIVITIES - PERMANENTLY RESTRICTED


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